: Arne Treholt, Vice President, Business Development Director
at MAYZUS Investment Company discusses Gold prices
Gold prices have suffered their sharpest fall in 30 years
over the last couple of days, heightening fears among investors that the
decade-long bull run for precious metals, especially gold, is about to end. The
dramatic development started on 12th of April with 15thof April as the ugly
black Monday for gold lovers. Gold has traded steadily between 1550 and 1615
during the first months of 2013, and then suddenly plunged USD 200. Shocked
investors took a deep breath after losing confidence in the metal for which
many thought that the sky was the limit.
The volatility of
market sentiments was demonstrated early Monday morning as investors debarred
gold from its safe haven status in just a few short hours. As a result of the
lost confidence in gold, the Japanese Yen (JPY), which had been suffering for
the last few months due to aggressive Japanese economic stimulus and monetary
easing, briefly regained its position as a safe haven candidate.
The safe haven
rally was short lived; USD/JPY jumped from a low 96 to above 98 yen to a dollar
in just a few hours. Following a technical upward correction after the steep
fall, markets continued to be extremely nervous, showing some similarities with
market behavior in 2008 prior to the financial crisis that autumn. After a
short rebound the selling pressure on gold continues.
Close market
followers could have noticed signals that investors were becoming increasingly
skeptical about gold. For many years, it has been taken more or less for
granted that gold is going to continue to rise and shine. However, if we look
back at the gold graph of the last couple of years, we can see that there have
been some worrying signals. Gold prices peaked and reached USD 1406 in early
January 2011. There was a technical correction down, but between February and
September gold prices rose steadily to USD 1920. A breakthrough of the magic
psychological 2000 level seemed to be within reach and many investors betted on
that opportunity.
Instead, gold
started to correct down steadily and moved sidelong before reaching an autumn
peak at 1787 on October 1, 2012. It has been falling down since October with
minor upwards technical corrections until it reached 1321 and rebounded to
1382. With the existing strong selling pressure and weak market sentiments
there is no reason to believe that USD 1350 represents a bottom.
In addition to the
charts, which show a steadily falling curve since September 2011, there have
been other reasons for concern. Major international banks have recommended
selling gold. There might be numerous reasons why Goldman Sachs, Credit Suisse
and Societe General are all in favor of liquidating gold reserves.
The erratic and
speculative way international banks have operated over the last few years, from
manipulation with labor to excessive greed, demonstrated in both trading and
investments, makes one ask, whether their recommendations are a new expression
of speculative behavior to their own best benefit? Are gold sales boosted up,
so certain market players can buy the precious metal back at strongly reduced
prices?
When George Soros
recommends selling as he did a few weeks ago, when gold prices were USD 1615,
there is a stronger reason for an alert.In spite of the fact that Soros
operates on behalf of his own institutions, he was first and foremost
considered to be an individual investor. Since the 1960’s it is a good idea for
the markets to listen to his predictions and advices. Two years ago, Soros
recommended to sell silver for USD 45, after its steady climb from USD 17 a troy
oz. Silver peaked at 49,67 and has been continuously falling since, reaching a
low of 22,65 on Monday, April 15th, 2013.
Where does gold go from here?
In a short-term
perspective, the technical upside correction already seems to have subsided.
Gold simply seems to have no steam to lift the precious metal beyond the USD
1400 limit. There is no inflationary pressure to strengthen gold. Ever
record-high US stocks have seen gold selling in favor of investments in stock
markets, which as long as the monetary easing continues will be a far more
interesting investment than placing money in the risky precious metal with
market sentiments against it.
The opportunity for
central banks selling their gold reserves to finance own assets requests from
international lenders as the European Central Bank (ECB) and the International
Monetary Fund (IMF) added to the selling pressure on gold. This development was
spurred by tiny Cyprus, but the idea was picked up by central banks in
countries like Italy and Spain that are also under big pressure.
There are, however,
more optimistic outlooks pointing to a strong gold recovery at the end of 2013,
even if most analysts seem to agree that it may take time before investors‘
confidence returns to the precious metals market. Gold is on the verge of being
oversold. An oversold market shall create a tighter supply/demand fundamentals
relation.
Even if stock
markets continue to raise, these rallies are artificial and are more based on
monetary easing than on economic fundamentals. What is going to happen when the
bubble bursts? Could gold then be back shining, considering that some central
banks in emerging countries are buying gold to strengthen their reserves?
There might be
light in the tunnel for gold prices in the medium and long-term perspective.
Having different
opinion on future prices for Gold? At MAYZUS you can test your judgments, read
more
here.
About the Author:
Arne Treholt, Vice
President, Business Development Director at
MAYZUS Investment Company
Mr. Treholt began
his career as a journalist and foreign correspondent of the Oslo-based daily
newspaper Arbeiderbladet in Norway. He then joined the Norwegian Royal Ministry
of Foreign Affairs, where he was promoted to the position of Political
Secretary to the Minister of Shipping and Foreign Trade, followed by his
position as Deputy Minister of Law of the Sea. He held the position of
Counselor for Economic Development and Social Affairs at the Ministry of
Foreign Affairs, and was member of the Norwegian Mission to the United Nations,
New York. Mr. Treholt retired from his diplomatic career and moved to Moscow, where
he became CEO of ISMOS Trading, followed by his position of CEO of Rim
Investment Management and FMC Securities in Cyprus. Mr. Treholt joined Mayzus
Investment Company in June 2009 as Vice President, and he is also in charge of
the business development and portfolio asset management of the company. He is
the author of five books and numerous articles on economics and politics.
