GOLD prices fell beneath $4,000 per ounce this week which industry figures said was a necessary correction as the metal’s rally had driven lately by speculative positioning.
Bullion declined to $3,980 per ounce during Monday’s session after climbing 27% over seven weeks to reach $4,381 on October 20. Prices have retreated more than nine percent from that recent peak within a week.
Industry executives gathering at the London Bullion Market Association conference in Kyoto suggested prices could fall further before recovering, according to a report by the Financial Times. “I think a lot of people in the industry would actually welcome a deeper correction than we have at the moment,” John Reade at the World Gold Council said.
A senior executive at a major bullion bank offered a blunter assessment: “Only the lunatics ever thought gold would get this high.”
This year’s surge has been fuelled by investors seeking protection against geopolitical uncertainty, elevated government debt and dollar weakness. Central banks have also accumulated gold whilst diversifying from dollar-denominated assets, though International Monetary Fund data indicates these purchases have recently moderated.
Bullion climbed more than two-thirds this year to its recent pinnacle, breaching $3,000 in March before surging past $4,000 in early October. Many industry participants attribute the latest jump to speculative positions creating an untenable rally.
“We are definitely in a correction, and corrections don’t play out in just a few days,” Nicholas Frappell at ABC Refinery told the Financial Times. He suggested gold could reach $3,700 before establishing new highs.
Outgoing LBMA chair Paul Fisher attributed the recent spike to market “froth”, adding that last week’s movement was “quite important” for clearing speculative positions.
Despite near-term concerns, major banks including HSBC, Bank of America and Société Générale maintain $5,000 price targets for next year.
LBMA chief executive Ruth Crowell said gold was on a “solid upward trajectory”, becoming “mainstream” for investors globally.
