Gold's bull market takes a breather

Gold has been on a wild ride of late. Last week it plunged below $1,600 an ounce for the first time in seven months. In the past few days it has regained the lost ground, but is still 5% down for the year and almost 20% below its record peak above $1,920, set in August 2011.

The yellow metal's lack of momentum in recent months has brought out the bears. Citigroup now says that the 12-year bull market is probably over. Technical analysts have also been rattled by the appearance of a death cross' in the gold charts.

What the commentators said

Gold, a traditional safe haven, "no longer looks safe", said Ian Campbell on Breakingviews. Things are gradually improving, reducing the need for an asset that thrives in bad times. The eurozone "has held together for now", China has avoided a hard landing and the US economy "appears to be on a recovery path". The latter implies that the "quantitative easing tap" will be turned off, reducing fears of future inflation.

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Indeed, last week brought news that some Federal Reserve officials were worried about an eventual surge in inflation and thought the Fed should be ready to cut back on buying bonds with printed money sooner rather than later. But Fed chairman Ben Bernanke this week reiterated that the benefits of money printing outweighed the potential costs, which was what "precious metals market bulls wanted to hear", said Jim Wyckoff on Kitco.com.

It's unlikely that Bernanke, who dictates policy at the Fed, would tighten anytime soon, reckoned Ambrose Evans-Pritchard on Telegraph.co.uk. It's too early to hail a sustained recovery. "We remain in a 1930s slump. Until this is overcome it is a fair bet" that central banks "will stay uber-loose to mitigate the damage". The danger of inflation remains because it is an easy way for governments to erode the value of their debts. "The world's policy-making elites know this."

That's why central banks mostly in emerging markets bought more gold last year than at any time since 1964. Renewed uncertainty over the future of the eurozone and US fiscal policy also bode well. In short, concluded Deutsche Bank, "it's too soon to give up on gold".