News Column

Gold prices take a Hit

July 14, 2014

By John, Waggoner, USA TODAY



Gold, one of 2014's stellar performers, sold off more than 2% Monday in a rout that traders blamed on profit-taking and pre-placed sell orders.

Gold started the year at $1,202 an ounce and soared 11.2% to $1,337.40 an ounce by Friday. Monday, however, the rally got hammered, and gold fell $30.70 an ounce, or 2.3%, to $1,306.70. IShares Gold Trust, a $7.1 billion exchange-traded fund that invests in the yellow metal, dropped 2.3%.

People invest in gold when they feel unsure about paper assets, particularly currency, or when war or other disruptions threaten to disrupt the financial system.

So far this year, talk of inflation -- which erodes the value of currency -- has been elevated, in part because May's consumer price index jumped 0.3%, bringing the 12-month inflation rate to 2.1%. The Federal Reserve has said that it aims for a 2% inflation rate, as measured by the core personal consumption expenditures price index, which rose 1.77% in May.

The tensions between Israel and Gaza have also intensified investor insecurity. But signs of slow growth in Europe have dampened some inflationary fears, and fears of a ground invasion of Gaza seem to be slowing as well. Both could have prompted some profit-taking in the yellow metal.

And, says Frank Holmes, CEO of U.S. Global Investors, wedding season in India -- a prime time for gold purchases on the subcontinent -- has ended for the summer.

Why the sell-off Monday? Hard to say. The gold market is small: A few relatively large trades can sway the gold market fairly quickly.

"Any of the major gold-trading firms or large-scale institutional speculators -- acting independently -- has the power to knock gold one way or the other by $25 or even $50 an ounce or more," says Jeffrey Nichols, managing director of American Precious Metals Advisors.

Currently, several large investment banks are negative on gold. Still, signs of higher inflation -- or further world unrest -- could send gold prices up again.





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Source: USA Today


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