THE GREAT
GOLD
ROUT
1
Is this the end of the bull market?
E
NC LD
OU E GO
FIN
After a decade long rally, gold
recorded its biggest two-day drop
in 30 years during April. What caused
this sudden decline? Is the gold cycle
over, or is this just a dip in the market?
$1500
$260
$500
$1000
2001
2005
2009
2011
APRIL
NOVEMBER
SEPTEMBER
APRIL
$1600
$1350
2011
2013
2013
AUGUST
APRIL 12
APRIL 15
$1909
A big technical break below the support level
2011
2012
2013
AUGUST
APRIL
1800
1500
The drop followed the breach of an
important break below the 1,525 USD/oz
level, which was sparked by news that
Cyprus plans to sell its gold reserves.
Gold rush in the Eurozone?
GOLD RESERVES
IN TONNES
2435.4 t
FRANCE
4th world’s
largest reserve
382.5 t
PORTUGAL
12th world’s
largest reserve
2451.8 t
ITALY
3rd world’s
largest reserve
111.9 t
GREECE
30th world’s
largest reserve
281.6 t
SPAIN
18th world’s
largest reserve
13.9 t
The prospect of a far larger sell-off by other indebted
nations like Italy and France, which hold vast amounts
of gold, is thought to have added to the decline.
CYPRUS
55th world’s
largest reserve
Gold ETP holdings sharply reduced
+205 t
166 t
+263 t
+241 t
634 t
876 t
371 t
2004
2005
2006
2007
+342 t
+651 t
+314 t
1190 t
1842 t
2008
2185 t
2009
2010
+275 t
+171 t
2356 t
-291 t
2340 t
2631 t
2011
2013/ APR
2012
TOTAL
OUTFLOWS
2013
291.3 t
100 TONNES IN ETPs HOLDINGS
INFLOW
OUTFLOW
A decline in Exchange Traded Products backed by gold is also thought to have
contributed to the fall in price. Total outflows rose to 291 tonnes in the first
four months of 2013 after consecutive net inflows in ETPs since 2004.
How many ounces of gold does it take to buy the Dow?
2007
AUGUST 31
2011
2013
AUGUST 22
APRIL 23
20oz
13357.74
5.78oz
14719.46
10.36oz
10854.65
The rout in gold is also a sign the global economy is recovering. A stellar stock market performance
in recent months has served to remove the general appetite for non-coupon investments like gold,
which has declined in value relative to the Dow Jones Industrial Average since 2011.
1 OUNCE
DOW JONES
Where next for gold?
Much will depend on how long
major central banks like the Federal
Reserve will pursue inflationary
policies and whether gold will retain
its status as a safe haven asset.
INFLATION
US CORE PCE
DEFLATOR
GOLD PRICE
GOLD FUTURE
PRICE (AS OF
APRIL 30, 2013)
2%
ANNUAL US INFLATION
1.7%
1.6%
1.6%
1.5%
14
6
$
$
12
14
$
$
15
6
7
97
2
2
$
15
$
37
14
$
70
14
75
9
1.3%
87
1.9%
1.8%
$
2
1
FOMC INFLATION
FORECAST
0
YEAR
2008
2009
2010
2011
2012
2013
2014
2015
SOURCES:
Federal Reserve Bank of St Louis FRED Economic Data: http://research.stlouisfed.org/fred2/
World Gold Council, Gold Demand Trends 2012: http://www.gold.org/investment/research/regular_reports/gold_demand_trends/
Bloomberg Market Data: http://www.bloomberg.com/markets
Federal Reserve: http://www.federalreserve.gov/monetarypolicy/fomcminutes20130320ep.htm
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