Gold price crashes

Tim Wallace
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GOLD crashed nine per cent yesterday in the market’s worst two-day performance since 1983, ending a decade-long boom and entering bear market territory.

The surprise dramatic collapse led a dip in other commodities and shares.

The Chicago Mercantile Exchange (CME) hiked gold and silver margins by 18.5 per cent in an effort to dampen speculative buying by forcing traders to put up more cash.

Slowing demand from the weakening Chinese economy has been blamed after gloomy figures surprised markets – economic growth came in at an annualised 7.7 per cent at the end of last year, well below the 7.9 per cent economists had forecast.

The crisis in Cyprus is also playing a part. On Friday European Central Bank boss Mario Draghi said the government may have to sell its gold reserves as part of the bailout plan.

And hints that central banks in the UK and US could at last ease off the printing presses also hit the price.

The market had been bolstered in recent years by cautious investors looking at ways to protect themselves against inflation caused by central banks printing money.

The Eurozone crisis has also sent funds into perceived safe havens like gold, while the booming Chinese economy has boosted the price of commodities across the board.

But the idea that gold represents a haven asset took a major knock yesterday. Over two days the metal lost more than 12 per cent of its value, the biggest dip since 1983. It is now down more than 25 per cent from its peak of $1,921 in September 2011.

“The growth numbers out of China are absolutely crucial for commodities and the numbers that came out are significantly worse than people were expecting,” said Nic Brown, from Natixis. “China makes up 40 per cent of demand for base metals and all the growth in demand for oil is coming from the developing world, so to see weakness in China is bad for commodities generally.”

Economists expect further falls.

“A combination of rumours that Cyprus may be forced to sell its gold stock and the prospect of less quantitative easing after Japan’s reprimanding by the US Treasury as basically a foreign exchange manipulator have sent gold to a two-year low,” said Steen Jakobsen from Saxo Bank.

Other markets also took a tumble during the day.

The Dow Jones fell 1.79 per cent and the S&P 500 dipped 2.3 per cent. The German DAX fell 0.41 per cent and the French CAC slid 0.5 per cent. Britain’s FTSE 100 slipped 0.64 per cent.

Commodities suffered with silver down 0.41 per cent to $22.78 and WTI crude oil down 4.27 per cent to $87.20.