Gold prices plummeted last Wednesday after US Federal Reserve Chairman Ben Bernanke’s comments to Congress appeared to rule out further monetary easing. At one point, around $100 was wiped off the price during New York trading. By Friday, gold ended at $1,709.80 an ounce, its lowest settlement price since 25 January.
Despite last week’s dramatic price drop, many analysts remain bullish about gold. More than half the participants in the most recent Kitco News Gold Survey are confident that gold prices will continue to rise. Some analysts pointed out that investors remain confident in gold's appeal, given that real interest rates remain low and inflation remains a long-term concern for many.
Another key factor that will determine the future trajectory of gold prices is the physical demand, particularly from Asia. Last week’s price dip below $1,700 saw many Asian investors rush in to buy the precious metal, with many seeing it as a healthy correction, rather than the start of a bear market. Carlos Perez-Santalla, a precious metals broker at PVM Futures, who remains bullish about gold, noted that “worldwide economic and political factors have not changed.” As a testimony of gold’s continued attractiveness, Edel Tully, an analyst at UBS, pointed out that “a cheaper gold price last Thursday elicited a hard-to-miss response from physical players across various regions.” James Steel, chief commodity analyst at HSBC, agreed, saying that "declines of this magnitude, however, often attract emerging-market buyers and may also interest potential central bank buyers.”
Nonetheless, price volatility is likely to remain the norm in the coming weeks, as investors are wary about unexpected market developments. Jeffery Wright, a managing director and metals analyst with Global Hunter Securities, said, “You have traders and investors who do not want to be holding the bag if we do go into a real correction in gold prices. They’ll head to the exits very quickly without waiting to see what the aftermath is.” Read More
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