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Analysts are offering up a host of reasons that attempt to explain gold's tumble the last two days.
1) Safe-haven demand falls off because of the trick play in the U.S. House regarding the debt ceiling. (That news was well-known Monday and Tuesday.) 2) The drop in jobless claims to a five-year low might have had an impact on precious metals, but seriously, the trend has been there all along, and people in the know pretty much had the numbers under their hats last week. 3) And then there is the - yawn - India import tax on gold, something that's been pulling into port for a year now.
So, we are left with technical sell-off action (see below for an elaboration); the upcoming ending of options; and general "feelings" that traders sometimes get that the market is overbought or oversold. "Gut instinct."
We opt for bits and pieces of "all of the above" but more critically would cite the International Monetary Fund's report issued yesterday on the world economy's growth probabilities and a description of the continuing crisis hounding us all. It is far more crucial to our strategies as precious traders.
Over all, the fund projects global growth of 3.5 % in 2013 and 4.1% in 2014, up from 3.2% in 2012. In the years immediately preceding the global downturn, economic growth ranged from 4.5 to 5.5% per year.
That is sobering enough for those of us who like to peg the idea of precious metals price rises to growth and inflation, risk plays and portfolio diversification, which normally comes in good times. More sobering, though, are the IMF's warning, especially about the United States.
To the deficit hawks, the IMF said bluntly, "If crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected." Sounds all well and good, doesn't it? The fund report adds, ""However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States. Policy action must urgently address these risks." "Fiscal consolidation" means budget cutting and an end to monetary easing.
Chief Economist for the fund Olivier Blanchard put a fine point on this warning, saying, "Financial market optimism should not lead to policy complacency." He also said that the United States must make it a priority "to avoid excessive fiscal consolidation in the short term, promptly raise the debt ceiling and agree on a credible medium-term consolidation plan."
As always, wishing you good trading,
Gary Wagner
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