Gold suffered a nasty fall last Wednesday. It slid by almost $100 to around $1,700 an ounce, and this week it fell further on technical selling: its slide triggered automatic sell orders, reinforcing the trend.
US Federal Reserve chairman Ben Bernanke’s refusal to announce more money printing (QE3) was blamed for the drop, which was compounded by a massive sell order, according to precious metals trader Sharps Pixley.
But the long-term uptrend remains. As James Mackintosh says in the FT, QE3 is hardly off the table. Another deterioration in the shaky US recovery would bring it closer. The overall backdrop remains bullish. Widespread money printing and negative real interest rates raise the risk of a sharp future jump in inflation.
Asian jewellers and money managers continue to buy on price weakness. Central banks, whose gold purchases have bolstered the market, will continue to buy gold this year, says the Royal Bank of Scotland.
Destabilising defaults remain a threat in Europe. Supply is still tight, notes Marketoracle.co.uk: of the four top gold producers, only China has boosted production in recent years, but this gold is largely consumed in China rather than exported to the international market. Stay long, says Morgan Stanley.