Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold plummeted 4.1%, closing at its lowest level since July 2011, in a stunning technical sell-off. Rumors that Merrill Lynch dumped 4 million ounces at the Comex opening helped to trigger waves of panicked short-selling as gold pushed through a series of support levels to as a low $1,491 before bouncing to close above $1,501. Gold has now lost more than 20% since its all-time high above $1,921 in September 2011, which means it has entered a technical bear market.

Beyond the Merrill rumor, a few specific catalysts have been identified. Earlier in the week, Goldman Sachs slashed its average gold forecast to $1,530 in three months and $1,390 in twelve months, citing increased momentum in the U.S. economy and minimal fallout from the financial meltdown in Cyprus. Goldman's public downgrade was a clarion call to speculators in paper gold to short the market, creating a self-fulfilling prophecy. This week's decision by Cyprus to liquidate nearly $525 million in gold reserves also weighed. While of a minor amount in itself, the sale could set a precedent for other struggling eurozone economies. And growing support among Fed members for curtailing monetary easing by midyear, evident in this week's release of the recent FOMC minutes, lent support to the dollar and, in turn, pressured gold.

Overall, though, the sell-off seems to be culmination of built-up negative sentiment, especially in the paper gold market. Momentum in ETF outflows since the beginning of the year, record-high short positions among hedge funds and other larger speculators, and increasing appetite for equities all came to a head today. Gold is now probably oversold but more shorts in the market may push it lower still before it regains its footing. The other precious metals also fell hard. Silver lost 4.9%, dropping the most since June, while platinum shed 2.6% and palladium fell 3.3%

At the Comex close: June gold plummeted $63.50 to $1,501.40; May silver lost $1.37 to end at $26.33; July platinum shed $39.90 to $1,495.90; and June palladium fell $24.25 to $709.10 an ounce.