Gold Prices Plunge

Brian Hicks

Updated April 16, 2013

Just when many people thought gold was looking to take an upturn, more news has come out that puts the metal in a relatively bad light.

According to USA Today, gold took another 9% drop on Monday, closing at $1,361 per ounce (down $140.40 for the day). The 9.35% deficit marks the worst “day-drop” in thirty years, putting the precious metal below the key price of $1,400 per ounce and officially causing it to enter a bear market.

gold_sidebarTake one look at the history of gold, and it becomes abundantly clear that the recent downturn has been following an all-too-obvious pattern. Gold reached an all-time high in August of 2011, closing at $1,888.70 oz on the 22nd of that month.

Analysts point to a 12-year rise towards a bullish market, with a major reversal occurring over the course of the past one and a half years, and especially in the past six months.

This isn’t the first time gold has taken a major plunge into a bear market, however. Between the years of 1996 and 1999, the metal had seen hard times after taking a 39% plunge. This is considered to be the worst downturn in gold prices since.

Searching for Causation

As with any other slump in the investment world, analysts are scrambling to determine why gold is continuing to fall in price, as well as what steps could reverse the issues.

Last week, news that the strength of China’s economy may be weakening served as a major contributing factor to the decrease in the price of gold. Chinese consumers tend to buy a fair amount of gold, and fears over the state of the economy has led many to believe that China will be consuming less gold in the near future.

China is not the only sector of the world that is having problems, however. While America’s economy is seemingly stabilizing, to say that it is currently in an impressive state would be making a rather massive overstatement.

The same can be said for the Eurozone, which has shown quite a bit of financial floundering over the course of early 2013. One might think that global economic fears would push gold in a forward direction (many consider the metal to be a hedge against inflation), although the numbers have shown this is not the case overall.

It’s unclear as to how yesterday’s horrific attack during the Boston Marathon will affect the price of gold. Some feel as if the market will be affected as it was post 9/11, although it’s too early to tell whether or not gold will fall prey to any worse of a downturn as a result of the event. Needless to say, however, the tragedy is not likely to help improve the state of the economy.

A Time to “Buy on the Dip?”

Investors are indeed scrambling to determine how to properly approach gold given the fact that it is in a major downturn. While some are aiming to sell, others aren’t so sure that that’s the best decision.

Because gold is in a bearish market at the moment, it may soon be a good time for new investors to enter into the scenario. Gold will no doubt see another rise at some point in the future, and given the fact that pricing is lower than it has been in some time now, some are arguing that there’s no better time than now to invest.

Others, however, don’t think its bear run is done. They’re waiting to see just where this downturn ends.

For investors who already own a fair amount of gold bullion, it’s worth holding onto. At the same token, however, now might be the time to look towards other investment opportunities as well.

Silver, for example, has seen a past almost as tumultuous as gold, but many believe it to be a better investment opportunity than the latter at the moment.

Others are looking towards Bitcoin as a way to hedge against inflation and currency crises, although it’s unclear as to what the future of this new, modern currency will bring.

Even if gold continues to fall, there’s no getting around the fact that it will someday rebound once again. Investors should be careful, but giving up gold as an investment opportunity at this time would be jumping the gun.  


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