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Gold’s price continues to fall and speculators are blamed
Pinnacle Digest writes: Pressure in the precious metal market remains strong and gold’s price continues to fall, hitting $1732 an ounce on Friday morning. That price is right around the one month low. Last Sunday, in our weekly letter, we stated “Like any other market in the world, when quick gains are made, profit taking is inevitable. And considering the rapid price appreciation, the pullback in gold thus far has been minor to say the least. Further consolidation down to $1,715 an ounce would not come as a surprise to us, nor would it change our opinion that the long-term trend for gold remains intact.”
Despite a weakening euro, gold dropped to its lowest level since August against the regional currency (€1326 per ounce).
To give you an idea just how tough of a stretch it has been for gold, according to Ben Traynor of bullionvault.com “Heading into the weekend, the Dollar gold price looks set for its second successive weekly fall, the first time this has happened since May.”
"We hold selling by speculative financial investors responsible for the price slide," says today's Commodities Daily note from Commerzbank.
"In recent weeks they had strongly built up their positions and may now be seeing themselves forced to take profits given the faltering upswing."
Naturally, any unreasonable price swings in an asset get blamed on speculators. However, it is an overused excuse. Every market is filled with speculators, but they aren’t the only reason a market loses steam.
Right now the biggest negative driver in the gold market is uncertainty. Contrary to what many believe, the precious metal is not a safe haven asset at the moment. It is a risk-on asset and a hedge against inflation. At some point we believe it will become a safe-haven asset, but currently that title belongs to the US dollar - which redefines all logic.
On a positive note for gold, according to Ben Traynor “Leaders meeting at the two-day European Union summit in Brussels, which concludes today, took a step towards the creation of a single Eurozone banking supervisor Thursday.
An agreement was reached that will give the European Central Bank supervisory powers over the approximately 6,000 financial institutions in the single currency area.”
If in fact this agreement is finalized, it will encourage the ECB to print more money and give it control very similar to what the Fed has in the US. This will be good for gold over the long-term.
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