By Ambrose Evans-Pritchard
The Telegraph, London
Wednesday, June 14, 2006
http://www.telegraph.co.uk/money/main.jhtml? [1]
xml=/money/2006/06/14/cngold14.xml
Gold has crashed $42 to $562.1 an ounce in late trading on fears of
a global economic downturn, smashing through layers of technical
support in the sharpest correction in five years.
Platinum, silver and industrial metals all tumbled yesterday,
exhibiting signs of a "capitulation" sell-off after a month of
losses. Copper touched a seven-week low of $6,600 per tonne.
Traders said the floor for gold may at last be in sight as bargain-
hunters return to the market.
Yesterday's spectacular fall was triggered by a fresh strength in
the dollar following a rise in core US producer inflation to 0.3pc
in May.
It comes amid a backdrop of hawkish comments from the US Federal
Reserve, deemed a threat to global growth. The key central banks of
Asia, Europe and North America are all raising rates in unison.
Gold is now down more than 23pc from its quarter-century high of
$730 in early May but the fall is still less than the 1975 mid-cycle
hiccup in the bull market of the 1970s when the metal dropped more
than 40pc before surging seven-fold again to record highs.
UBS, the world's biggest gold trader, said the speculative excesses
have now been squeezed out of the bullion market.
"The worst of the sell-off is probably behind us but we are not
prepared to issue tactical buy recommendations at this point," a
client note said.
Robin Bhar, a UBS metals analyst, said gold was likely to settle
near $575, though it may take a few weeks to build a floor.
The bank is waiting for three key signals: an end to the dollar
rally; fresh physical buying; and signs that speculative funds are
switching back to the "long" side.
"If all three happen, we have the perfect storm for gold," he said.
Vyacheslav Zabin, from BrokerCreditService in Moscow, said gold had
reached a "permanently higher plateau" and would not fall much below
$560.
He said the Russian central bank, flush with up to $6bn in fresh
reserves each month, was becoming a major prop for the market. "They
are accumulating but they do it quietly by purchasing lots straight
from the producers," he said.
Legendary investor George Soros said the slide has been driven by
the withdrawal of $200bn from the global economy by the Bank of
Japan since March. "We are in a situation where all asset classes
are under pressure because of a reduction in liquidity. Cash, not in
dollars, is king," he said.
Ross Norman, director of the BullionDesk.com, said he had been
shocked by the ferocity of the sell-off yesterday but believed that
gold's bull market was still intact.
"The new buy-and-hold merchants like pension funds are in for the
long run and there is not enough new supply to meet demand," he said.
However, the metals rout is likely to deter newcomers such as the
London Pensions Fund Authority (LPFA) and the Norwegian Petroleum
Fund. "We need to look more closely at commodities with our advisers
before we invest," said Peter Scales, the LPFA's chief executive.
With good timing, the fund shelved its plans for a metals bet in
March.
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