news story mid cycle fall before next run up

Seems this is just a breather is the 1970's gold bull run is anything to go by.

Gold has crashed $42 to $562.1 an ounce in late trading on fears of a global economic downturn, smashing through layers of technical support in the sharpest correction in five years.


Platinum, silver and industrial metals all tumbled yesterday, exhibiting signs of a "capitulation" sell-off after a month of losses. Copper touched a seven-week low of $6,600 per tonne.

Traders said the floor for gold may at last be in sight as bargain-hunters return to the market.

Yesterday's spectacular fall was triggered by a fresh strength in the dollar following a rise in core US producer inflation to 0.3pc in May.

It comes amid a backdrop of hawkish comments from the US Federal Reserve, deemed a threat to global growth. The key central banks of Asia, Europe and North America are all raising rates in unison.

Gold is now down more than 23pc from its quarter-century high of $730 in early May but the fall is still less than the 1975 mid-cycle hiccup in the bull market of the 1970s when the metal dropped more than 40pc before surging seven-fold again to record highs.

UBS, the world's biggest gold trader, said the speculative excesses have now been squeezed out of the bullion market.

"The worst of the sell-off is probably behind us but we are not prepared to issue tactical buy recommendations at this point," a client note said.

Robin Bhar, a UBS metals analyst, said gold was likely to settle near $575, though it may take a few weeks to build a floor.

The bank is waiting for three key signals: an end to the dollar rally; fresh physical buying; and signs that speculative funds are switching back to the "long" side.

"If all three happen, we have the perfect storm for gold," he said.

Vyacheslav Zabin, from BrokerCreditService in Moscow, said gold had reached a "permanently higher plateau" and would not fall much below $560.

He said the Russian central bank, flush with up to $6bn in fresh reserves each month, was becoming a major prop for the market. "They are accumulating but they do it quietly by purchasing lots straight from the producers," he said.

Legendary investor George Soros said the slide has been driven by the withdrawal of $200bn from the global economy by the Bank of Japan since March. "We are in a situation where all asset classes are under pressure because of a reduction in liquidity. Cash, not in dollars, is king," he said.

Ross Norman, director of the BullionDesk.com, said he had been shocked by the ferocity of the sell-off yesterday but believed that gold's bull market was still intact.

"The new buy-and-hold merchants like pension funds are in for the long run and there is not enough new supply to meet demand," he said.

However, the metals rout is likely to deter newcomers such as the London Pensions Fund Authority (LPFA) and the Norwegian Petroleum Fund. "We need to look more closely at commodities with our advisers before we invest," said Peter Scales, the LPFA's chief executive. With good timing, the fund shelved its plans for a metals bet in March.