Big decline in the gold price predicted

Big decline in the gold price predicted

Somphong Vajirakaphan, CEO of one of Chinatown’s better-known goldsmiths, said if the long queues at gold stores in China on the day gold prices hit US$1,000 (Bt31,200) an ounce indicated anything, it was that the market remained jittery and panicky.

Although touted as a safe haven for investors seeking to cover their losses in the volatile equity and bond markets, commodity prices have also been volatile. Just as oil reached a new high of $111.80 a barrel on March 17, it fell to $103.23 on the same day, the biggest swing the market has seen in almost two decades. At the same time, corn, wheat, coffee and soybean futures being traded on the Chicago Board of Trade in Illinois saw record slumps, some as big as the exchange’s rules permitted. Fundamentally, gold is an attractive asset class, Somphong said. But technically, there is a lot of adjustment to be made in the short term. He cited the recent 5.8-per-cent dive in gold prices following the historic rise beyond $1,000 an ounce as an example.

“When people heard some central banks in Europe were selling their gold, many simply followed suit and offloaded theirs. The price went down as much as 15 per cent,” he said. He believes the central banks in question are selling off their gold as a cushion to the weakening US dollar.

Historically, gold prices and the dollar move in opposite directions, said Finansa Wealth Management executive chairman Teera Phutrakul. And with no one knowing how many dollars have been printed or how far the Federal Reserve can cut its policy interest rate, inflation looks inevitable. Some have even predicted stagflation – inflation and a stagnant economy – in the US.

With all of these unfavourable elements at play, the greenback looks as if it will take another nosedive – or at least lose its allure.

“The world economy is in the third phase of a supercycle in which volatility is common,” Somphong said. He predicts a bottom world price for gold of $800 to $850 an ounce, the highest dollar-adjusted price for gold since the 1980s.


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