What Happened to the Gold Price?
Gold in US dollar terms fell nearly $30 an ounce, or nearly 2%. In Aussie dollar terms, the fall wasn’t as harsh. This is because the Aussie dollar fell against the US dollar too.
Why Did This Happen to the Gold Price?
There are always explanations offered for gold’s daily price moves. Often these explanations are just guesses. The sharp fall in the US dollar gold price is partly because the market thinks the US Federal Reserve will start raising interest rates sooner rather than later, and partly because of profit taking. Gold has had a very strong month on the back of concerns over Greece and the Eurozone in general. It’s natural for selling to take place after a strong run in any asset.
What Now for Gold?
It’s natural and healthy for assets to pull back after a strong run, and gold is no different. It will be a positive to see gold remain above or around the US$1,250 level in this correction. If it does, it will lend weight to the idea that a new bull market could be emerging for the precious metal.
This makes sense given the fragile state of the Eurozone. Gold loves monetary disorder, and if one of the world’s most important fiat currencies (the euro) is under threat, gold will do well.
However, if the gold price falls back below US$1,200, you can assume the bear market that gold’s been in for the past three years or so will continue to drag on.
for The Daily Reckoning