Nothing good has happened to gold in the last week. Its price seems to be headed for the depths – freefalling $1,000 in the first three months of this year, diving another $500 from April 2 through 12, then flirting with $1,400 at market opening today. Now in the early afternoon, the gold price has taken another plunge to nearly $1,350 before nudging back up $20 or so.
Gold is now in an bear market having dropped more than 20% (more like 38%) from its high of $1,895 in September 2011.
The downward pressure is coming from many fronts. The Chinese economy underperformed in the first quarter, growing only 7.7% rather than the predicted 8.0%. Other commodities – metals and agricultural – were down, too. And there is rumour that Cyprus will be selling off its gold stockpile.
Optimists will point out that the stock markets are gaining strength, but gold miners don't mine paper, they mine and sell metal. There must be a strong gold market to ensure they stay in business.
The price of gold mining stocks has not followed the upward climb of the metal's price over the past few years, and now Barrick – hit with the double whammy of plummeting prices and a stop work order on the Chilean portion of its Pascua-Lama project – has slipped from its world leading rank. At the end of last week Goldcorp was the world's largest gold miner in terms of market capitalization, eclipsing Barrick (C$22.97billion) with a valuation of C$24.41 billion.
And the carnage continues. Barrick shares fell almost 10% by early afternoon on April 15, and Goldcorp 4%.
Where has my optimism gone? I wrote in September 2011 that I would not be surprised to see gold at $2,000 per oz by the beginning of 2012. Little could I predict the European debt crises, the economic effects of the Japanese earthquake, or the failure of the US lawmakers to agree on budgetary solutions.
I concluded, "If anyone knows for sure that the price of gold will be in three months, six months or a year, that person could make huge profits. For the rest of us, volatility in the gold market is difficult to out manoeuvre."
Come to think of it, volatility may well be the new normal.