After enjoying a long period of stability for the past several
months at the $1,650 to $1,700 an ounce level, gold dipped below
$1,600 on Feb. 20, closing at $1,588.50 an ounce in the London
markets. Gold had reached a low of $1,564.30 in London during the
day’s trading, and on Feb. 21 gold hovered around the $1,575 an ounce level.
The drop created a seven-month low for gold that represented the
worst one-week drop since May 2012. It was also the first time that
gold closed below $1,600 an ounce since Aug. 14, 2012, when it closed
at $1,597.75 an ounce.
After the most recent dip, Citigroup lowered its ratings on
several gold mining companies and wrote in a report, “The problem with
gold is that it is a very ‘long cycle’ metal and if it IS in the
process of peaking now, then history suggests that it could go into
hibernation for a long, long time.”
Under that logic, if gold has already peaked, then it may have
further to fall. At this time in 2011 gold was at the $1,400 an ounce
level, and back in February 2008 it hovered at the $1,000 an ounce
level, reaching a five-year low of $712 an ounce in the fall of 2008.
An impetus for the recent sell-off was the release of the January
2013 meeting minutes of the Federal Reserve’s policy committee. The
report suggested that it may scale back its monetary stimulus. This
reduced gold’s appeal as an inflation-hedge.
The drop below the psychological barrier of $1,600 an ounce was
also caused in part by economic data showing that the U.S. economy is
slowly improving and a growing perception that the global economy has
stabilized. This stability can lead people away from assets like gold
and silver, and toward assets perceived as riskier.
Some people saw buying opportunities in the quick drop. APMEX’s
Bullion Center on eBay reported that it enjoyed its second best sales
day on Feb. 20, stating in a press release that buyers concluded that
“precious metals were on sale and at a discount relative to the
expected future values.”
Wild price swings have the greatest impact on coins that trade at
levels close to bullion. This group includes both traditional bullion
products and many collector coins with values closely tied to bullion.
A quick drop in the price of gold can have a big impact on dealers
big and small who are working on a tight profit margin with bullion