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Price of gold extends losses

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by Kay Mitchell

The price of spot gold fell further today – to a 2½-month low of $1,624 – after reaching a record high of $1,920.94 a troy ounce earlier this month.

This represents the sharpest drop since March 2009 – in the aftermath of the collapse of US bank, Lehman Brothers.

Gold is now down 9% from its record high as investors no longer see the precious metal as a safe haven.

However, it is still up around 20% for the year to date.

Prices of other precious metals also fell, with silver down 5.3% to $29.39 – its lowest level for seven months.

The fall in the price of gold was attributed to strong gains by the US dollar – the two typically move in the opposite direction.

Commodities such as gold lose their appeal to investors when the dollar strengthens because those asset classes become more costly to buyers from overseas.

One analyst said the precious metal could fall to $1,582 in the short term, but is optimistic for its long-term prospects, with some expecting it to hit a high of $2,000.

According to analysts, investors are likely to monitor developments on the global economy before investing further into gold since its recent volatility makes them nervous.

Back in July, many investors said it would reach as high as $1,700 an ounce by December and at the time, the surge in the price of gold was linked to ratings agency Moody’s reviewing the US’s AAA debt rating, warning there was a growing likelihood the US will default on its debt obligations.

Furthermore, many were concerned about the ongoing debt crisis in the euro zone and this sent the US dollar tumbling and the price of gold soaring.

Investors remain concerned about the euro zone sovereign debt crisis but today shares have rallied after G20 talks at the weekend proposed an action plan for the debt-laden nation.

A report from the Washington-based International Monetary Fund (IMF) suggests that fresh action for the euro zone debt crisis is underway, which will prevent the crisis from spreading and impacting on the global economy.

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News posted: September 27, 2011

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