Gold takes biggest plunge in over 30 years
Investors feel the sting as global fears send mining stocks tumbling.
Gold prices fell the most in 30 years, carrying the share values of Vancouver- based gold miners with it, as bigger global fears of a sovereign sell- off drove its value to a two- year low.
The spot price of an ounce of gold dropped $ 140.40 to $ 1,360.60 US in the biggest one- day percentage drop since at least February 1983 as news of slower growth in China eased global inflation concerns. Discussion that Cyprus might sell some of its sovereign stores of gold to shore up its finances stoked fears of a possible wider sell- off in Europe.
In early trading in Asia after North American markets closed, gold fell another $ 21 US an ounce to $ 1,332.
David West, a precious- metals analyst at Vancouver- based Salman Partners, said that while there was an expectation that the gold price would decline at some point, this drop was perhaps more sudden than expected.
“It’s not just one thing ( driving the price down),” West said, adding the decline is being fuelled by gold investors forced to sell to cover margin calls and by stop- loss provisions that take hold as the price drops.
“Once you get to a certain point, the ball just keeps getting bigger and bigger, and I think that’s where we’re at this point,” West said.
The shares of gold- mining companies and other commodityrelated issuers fell along with the metal — which is where average investors will feel the pinch.
“Generally speaking, most investors don’t hold gold,” he said, but “chances are, in Canada, they’re going to hold either gold ( mining) stocks as a portfolio, or own mutual funds that hold the stocks. Right off the bat, when you get your mutual fund statements at the end of the month, you’re going to see anything that’s either a mining fund or TSX- heavy fund, the net asset value go down.”
Vancouver- based Goldcorp was down 5.6 per cent Monday, dropping $ 1.69 to close at $ 28.38 per share.
That reduced Goldcorp’s market capitalization to $ 23 billion, down from $ 24.4 billion on Friday but above Barrick Gold’s equity value of about $ 20.3 billion.
Toronto- based Barrick continued to be among the hardest hit, falling $ 2.64, or 11.5 per cent, to $ 20.30 on volume of more than 11 million shares, the most on the Toronto Stock Exchange.
In addition to falling gold prices, Barrick’s other problems include an injunction by a Chilean court that halted construction on its $ 8- billion Pascua- Lama mine on the border of Chile and Argentina.
The stock lost about 15 per cent of its value last week and is now at its lowest price in about a decade.
Among other Vancouverbased miners, New Gold fell $ 1.11, or 14 per cent, to close at $ 6.75; Eldorado Gold was down 53 cents, or seven per cent, to $ 7.12 per share and exploration firm Pretium Resources was down 67 cents, or 10 per cent, to $ 6.08 in trading Monday on the Toronto Stock Exchange.
The precipitous drop in the gold price has taken it from above $ 1,600 US just 10 days ago. 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.
“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.
However, West said that while gold has declined in part because fears of inflation in the U. S. and China have eased, the global economic uncertainties that pushed safe- haven gold to extremely high prices have not abated.
“Fundamentally speaking, the market is not that much different than it was two weeks ago, that’s one thing investors have to keep in mind,” West said.
The European economy is still uncertain, he added, the U. S. recovery is tepid and America is still heavily indebted, which are “fundamentals out there that favour a much higher gold price than this.”