How the mighty have fallen.
Gold, an investors’ darling that powered from $400 an ounce in 2003 to a high of nearly $1900 in September 2011, plunged to $1055.90 on Friday, down over 1% for the day.
Even the recent geo-political convulsions, such as the Paris terror attack and the Turkish downing of a Russian fighter jet, have failed to trigger any significant ‘safe haven’ buying in the shiny metal.
Paying the price for the US dollar’s ascendancy as the new medium of global refuge, gold has corrected approximately 45% from its September 2011 high.
The US dollar and gold have traditionally moved in inverse directions because strength in the US dollar increases the price in terms of the local currencies in key importing countries such as China and India.
The US dollar has been moving up sharply since July 2014 on global buying due to impending rate hikes being indicated by the US Fed. Apart from strengthening the dollar, higher interest rates dim the allure for gold because investors earn no interest on their gold holdings.
Recent moves by the Indian government to encourage gold holdings through the medium of bonds linked to the gold price, rather than physical metal, may also result in lower imports by India. Chinese gold demand is also expected to be muted due to the slowdown in the economy and the meltdown in its property and stock markets.
All-in-all, a storm of bearish factors is weighing on gold.
Gold mining company Atna Resources Ltd. last week filed for Chapter 11 Bankruptcy protection.
“The low gold prices in 2015, the continued indifference in the market for gold company equities, a lack of capital in the mining sector, a lack of development capital and operating issues resulting in a significant shortfall in third-quarter gold production at the Pinson mine, and a depressed market for the sale of idled mining equipment all negatively impacted the company’s outlook and led to the company’s current liquidity problems,” the company said.
Images: Atna Resources Ltd.