Gold futures fall close to $1,500 as analysts warn of bear market

TradingPub Admin | April 15, 2013

Responsive image

One key lesson in futures trading education revolves around how price movements of a specific size can trigger momentum and extend whatever gains or losses have happened recently. 

For example, the price of gold futures fell below $1,500 per ounce on April 12, and market experts noted that if the contract closed at the value it reached during the day, the drop from the high of almost $1,900 an ounce would signal a bear market, according to Bloomberg. 

June gold futures fell to as low as $1,491.40 an ounce on the Comex division of the New York Mercantile Exchange, before paring these gains to trade at $1,503 per ounce at 11:11 a.m., the media outlet reports. Finishing the trading session at this price would represent a 21 percent drop from the record value of $1,891.90 reached in August 2011, which would mean that gold has fallen into a bear market. 

Changing sentiment
Many market experts have warned that the perception that investors have had of gold may be changing, as it has experienced sharp declines in value recently, with the depreciation in the value of the asset being so severe that some Wall Street analysts have declared that the golden age of gold is over, according to The New York Times. Keep in mind that gold did increase in value for 12 years in a row. 

As a result of this continued appreciation, many market participants came to believe that it would keep on rising in price indefinitely, the media outlet reports. Data provided by a Gallup poll conducted in April 2011 reveals that at the time, 34 percent of participants singled out the precious metal above all other assets as being the best long-term investment. 

Sharp reverse
After gaining for 12 consecutive years, gold has plunged 6.6 percent in 2013 through April 11, according to Bloomberg. Global investors have been pulling out of exchange-traded products that hold the metal, with the holdings of SPDR Gold Trust, the world's largest bullion-backed fund, falling to 1,181.4 metric tons on April 11, which is close to a three-year low. 

"All of the traditionally supportive reasons for buying gold don't seem to work right now," Frank Cholly, a senior commodity broker at Chicago-based RJO Futures, told the news source during a telephone interview. "The argument for gold as a safe haven or protection against inflation just isn't there."

He said that the sentiment of investors is that of seeking out risk, which is causing them to opt for stocks instead of gold. 

Fading appeal of gold
Many market experts are asserting that after surging 650 percent between August 1999 and August 2011, gold is becoming less enticing to global investors, according to The New York Times. The confidence in the global economy recovering is firming up and this change in sentiment has made the safe-haven asset less appealing. 

Another factor that is helping to undermine interest in gold is that while it has frequently been viewed as a hedge against inflation, concerns that the robust monetary easing policies of banks across the world would drive up the price level have yet to be supported by economic data, the media outlet reports. 

Wall Street bears
In recent weeks and months, a growing number of Wall Street firms have expressed their increasingly bearish sentiment about the precious metal, cutting their price forecasts for the metal in the short-term and long-term, according to the news source. Major investment bank Goldman Sachs made headlines by predicting that the price of the metal would plunge to $1,390 within the next year. 

If you want access to free, quality futures trading education, you can find it at TradingPub, which gives you the opportunity to interact with some of the top traders and investors in the industry.