Gold prices recovered slightly yesterday after suffering their heaviest slump in 30 years triggered by weak Chinese growth data and reports Cyprus is planning to sell part of its reserves.
Analysts said the 13 percent drop in prices between Friday’s open and Monday’s close could show gold’s 12-year bull run is at an end, with investors turning away from the metal, which is traditionally a hedge against inflation.
In Asia yesterday afternoon, an ounce of gold cost US$1,363.85. The commodity enjoyed a lift after sinking to as low as US$1,338.00 at one point in New York on Monday — a 10.9 percent fall and its sharpest slump since 1983.
Investors were spooked after China released data on Monday showing growth in the world’s second-largest economy had slowed in the first quarter to 7.7 percent, below forecasts and indicating the pickup remains fragile.
The news also hit equity markets, while other commodities also tumbled, with the May contract for Brent crude falling below US$100 a barrel for the first time since July last year. China is a huge importer of oil to drive its vast economy.
“It’s the speed of it and the extent of the sell-off that shocked everybody,” said Kelly Teoh, market strategist at IG Markets in Singapore. “For the rest of the week it’s going to look quite bearish.”
The longer-term view is that with inflation expectations still flat — as US and Chinese data indicate — people who buy gold as a hedge against rising prices have been driven to dump bullion.
“Gold has had a 12-year run. It’s done really well, but if you’re holding a position and you’re seeing you’re getting a better yield in the cash markets, it’s a natural move,” Teoh said.
Adding to the unease were reports last week that the central bank in Cyprus is looking to sell some of its 14 tonnes of gold to help pay for a bailout agreed with the EU and IMF.
Joyce Liu, investment analyst at Phillip Futures in Singapore, said such a move fueled concerns that other troubled countries could follow suit.
In Hong Kong, jeweler Amy Lee said buyers who had rushed to buy gold after Friday’s losses had cooled off yesterday.
“People are buying gold as a hedge against inflation and they see it as a good chance to buy now with the price falling, but we have seen fewer customers [on Tuesday], I think that’s because they are waiting to see if the prices will continue to fall,” Lee of Pak Kong Jewellery & Goldsmith said.