Gold, which was seen as a safe haven to counter the uncertainty and volatility in the recession period, on Friday saw its price plunge 20% from its record 2011 high of $1920.30 to a two-year low below the $1500-$1525 support zone, triggering bearish sentiments. After a 12-year bull run, a clear turn in the gold cycle is finally visible, but will this trend continue?
Speculation that the Federal Reserve may wind down its Quantitative Easing program amidst signs of an economic recovery has led to gold prices declining this year. And the prices haven’t recovered despite concerns surrounding the Cyprus bank bailout, weak US jobs data report and the Bank of Japan’s stimulus program.
Early this month, investment firms Societe Generale cut its year-end target to $1,375 in a report that hinted at the end of the gold era. Last week, Goldman Sachs added to this sentiment by cutting its 2013 gold estimate to $1,545 an ounce from $1,610 and recommending investors to sell gold holdings. And as news of other analyst downgrades reached the market, gold prices plunged below the cushion price of $1500 and entered the bear market.
Gold, over the past 12 years, has appreciated by 700 percent and was seen as one of the best investment options. Since 1971, every rally has seen gold prices correcting by 40-50 percent. Does that mean we will see gold prices kissing the $1000 mark? Or is this a seasonal correction in prices? Only time can tell because you cannot really predict human behavior.