Gold is down again on Monday and by down, we mean plummeting. As of 6:00 am EST Monday, gold is down more than $100, trading below $1,400. That’s a seven percent drop.
Silver is having a bad Monday too, but what’s interesting is that a six percent drop in the most talked about of all metals is receiving a relatively small amount of press.
Let’s put this in stock market terms. If the Dow was down seven percent, you would have checked the futures to see a drop of more than 1,000 points. (1,037 to be exact.) The S&P would be down 111 points and the NASDAQ—down 230 points.
On CNBC Monday morning, Dennis Gartman said, “I’ve never anything like this…and I mean it.”
Gold didn’t get the attention it deserved over the weekend, but it’s likely to get it today. Why is the metal down more than $150 since Friday? The commodities market is complicated because of its direct worldwide reach, but here’s what Gartman thinks
Cyprus
After receiving a bailout, Cyprus didn’t become a happily ever after story. The country is forecasted to contract 8.7 percent this year and in order to raise capital, it will likely have to sell a large portion of its gold reserves. It will amount to more than 100 tons of the metal valued at $523 million. (Subtract $36 million based on Monday’s move alone.)
The fear is that if Cyprus has to sell its reserves, other eurozone countries will as well.
The Fed
When the Fed talks, gold moves and Wednesday’s minutes, despite the questionable way they were released, sent gold traders running. Everybody expected that QE would slow and eventually stop but reading that discussions in the meeting included ending the program by the end of the year, was unexpected. This has left gold under pressure since Wednesday.
Perfectly Timed Call
Goldman Sachs (NYSE: GS) made a perfectly timed call last Wednesday when it predicted that gold would fall to $1,390 over the next twelve months. As of Monday morning, it briefly reached that level. This report, combined with the Fed minutes, place gold under even more pressure.
Margin Calls
Big moves cause larger moves because of margin calls in the metals. Futures exchanges want to protect themselves against traders defaulting causing a glut of selling in those markets.
Oil
Commodities traders know that when oil is under pressure that affects gold prices. Recent data show that oil is in oversupply which brought oil down 3.5 percent this morning to around $88.
A Tangled Web
All of these factors, and many others, have combined to bring gold down to its lowest levels since 2011. Add to that technical selling as key levels are breached, and we could have a downward move that could be far from over.
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