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Gold’s glitter dims as investors panic

New York - The sharp decline in the price of gold has had knock-on effects throughout commodity markets.

Gold plunged below $1 400 an ounce for the first time in two years as a sell-off in metals continued from last week.

"I think you're getting some panic selling right now," said Frank Fantozzi, CEO of Planned Financial Services, a wealth management firm. "People who have been holding on to gold expecting a rebound are now thinking, 'I better get out.'"

“What we now see is panic selling" that could perhaps have been triggered by the Fed’s stimulus view, said analyst at UBS Wealth Management, Dominic Schnider, who was quoted by Euronews.

Independent analyst Ian Cruickshanks said the outlook for the gold price and gold stocks was gloomy.

“There is less demand for gold as a hedge against inflation‚ which is likely to trend lower if brent crude dips and stays below $100 per barrel. The US‚ which is the biggest importer of oil‚ is moving towards self sufficiency‚” said Cruickshanks.

Gold spot fell to an intraday low of $1 385.45oz‚ its lowest point since February 2011.

Gold shares came under heaving selling pressure on the weaker spot price‚ with Harmony Gold Mining Company [JSE:HAR] dropping 8.79% to R45.65‚ the weakest level since May 2005‚ at 14:12. Gold Fields [JSE:GFI] lost 5.14% to R58.46 the level last seen in November 2008 and AngloGold Ashanti [JSE:ANG] shed 6.29% to R176.83.

There is talk in the markets that a number of institutions are cashing in following a reduction in gold price predictions from leading investment banks, including Goldman Sachs.

Many reasons have been put forward to explain the sudden change of course, including speculation that Cyprus may sell a chunk of its reserves to finance its part of its financial rescue. Though that may not materialize, it was enough to prompt some investors to think that a gold-selling strategy may be used elsewhere in the troubled eurozone.

Another reason put forward is that the Federal Reserve will outline a strategy to withdraw its monetary stimulus later this year despite recent mixed signals out of the US economy, the world's largest.

"Investors are clearly turning away from gold here, using the price action as justification for unwinding positions and taking capital away from what was once considered as almost a one-way bet," said David White, a trader at Spreadex. "Even those naturally contrarian are struggling to find reasons to own gold."

Investors tend to buy gold when they expect inflation to increase. Any indication that prices aren't rising prompts investors to sell gold.


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