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Gold falls below $1,400 after reaching bear market

TradingPub Admin | April 15, 2013

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One important thing you can benefit from knowing is how an asset can lose substantial value once it encounters a key price drop. 

Gold falls
The price of gold futures fell below $1,400 an ounce on April 15, after falling into a bear market on the previous trading day, which was April 12, according to Bloomberg. June gold trading on the Comex division of the New York Mercantile Exchange depreciated to as low as $1,385 per ounce on April 15, before paring these losses to reach $1,406.80 an ounce by 7:51 a.m. The week before, the contract experienced a sharp drop of 4.7 percent. In addition, spot gold was 5 percent lower at $1,408.29 in London. 

CNN Money reports that the price of the precious metal was driven lower as global market participants sold commodities. One factor that market experts cited as a possible contributor to the movement away from these raw materials was falling growth in China, which is the world's second-largest economy. 

China woes
The gross domestic product (GDP) of the Asian nation expanded at an annualized rate of 7.7 percent in the first quarter of this year, according to data provided by the Beijing-based National Bureau of Statistics, according to the news source. This figure represents a minor slowdown from the rate of 7.9 percent in the final quarter of 2012. The Chinese expansion in GDP was lower than the median forecast of 8 percent provided by analysts taking part in a Bloomberg news survey. A total of 41 market experts took part in the poll. 

Not only did the nation's figure for economic output decline, but also China's industrial production fell to an annualized rate of 8.9 percent in March, CNN Money reports. This economic indicator was also lower than the prediction of market experts, as economists forecast that this measure of output would decline to a rate of 10 percent. 

Cyprus
One more factor that has generated visibility and helped to potentially impact the expectations for the future price of gold is speculation that the Central Bank of Cyprus will sell some of its holdings of the precious metal, according to Bloomberg. Data provided by the World Gold Council reveals that the financial institution currently has 13.9 metric tons of the metal. 

While it has been claimed in a April 9 debt assessment conducted by the European Commission that Cyprus had pledged to sell around 400 million euros ($525 million) worth of the metal, the nation's central bank did not corroborate the report, according to the news source. 

"Some of the key pillars of the gold bull market look like they're suffering fatigue," Peter Richardson, an analyst at Morgan Stanley, told the news source via telephone. "The gold market's probably started to price in the prospect that beleaguered members of the euro zone might be forced to sell gold to raise part of the funding, and there are much bigger holders in that category than Cyprus."

CNN Money reports that the troubled European nation may not be the only one that harnesses this method of improving its finances by selling gold reserves, as some market participants believe that other countries in the region could potentially follow the same process. 

Bear market
The price of gold rose for 12 years in a row, but has plunged 16 percent so far in 2013, according to Bloomberg. "This is a market that has been bullish for nigh on 10 years, finally turning into a fully-fledged bear market," David Govett, head of precious metals at London-based Marex Spectron Group, wrote in a report released on April 15, the news source reports. 

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