Gold remains in a long-term bull market

Investors starting to look at lower gold price as a buying opportunity

Gold is poised for the worst run of monthly losses in almost 13 years as concern that Europe’s fiscal crisis is escalating drove investors to seek the USD as a haven over the precious metal. Spot gold was little changed at $1,562.63 after climbing 0.5 % yesterday. Bullion is 6.1 % lower in May for its biggest drop this year as the USD rallied 5.4 % against a six-currency.

Hong Kong’s yuan-denominated gold trading slumped 78 % from its January peak as bullion prices tumbled, sales at jewelry retailers slowed and the currency weakened, said the city’s century-old bullion bourse. Average daily trading volume was 533 million yuan ($83.7 million) this month, compared with 2.38 billion yuan in January, Chinese Gold & Silver Exchange Society President Haywood Cheung said .

However, the recent decline in gold has some investors puzzled as the yellow metal is supposed to be attractive when global economic uncertainty rises. During the debt crisis, investors turned to gold as a safe haven which helped propel it to a record high of around US$1920 in September 2011.

More recently, gold tracks the equity markets and moves opposite the US dollar like other commodities. In late-February, the yellow metal rallied up to a high of $1790.60 per ounce and has since fallen as much as 14.5 per cent to around US$1526.9 per ounce this week. The decline off the record high has been a little over 20 per cent.

Mr. Bruce Powers, Head of Research at Dubai’s based Trust Securities, said: “Lately, instead of jumping into gold for safety, investors have flocked to the US Dollar, US Treasuries and German Bonds. Recent downward pressure may have been amplified by investors liquidating gold to cover weak positions in the equity markets. However, even with the recent decline, gold remains in a long-term bull market.”

Nevertheless, a regaining strength U.S. economy may weight on markets players’ investment decisions.