Gold leads latest dive in commodities, wiping out 2008 gain

If you were hoping to buy gold for a lot less than $1,000 an ounce, you’re getting your chance.

But buying now may be akin to catching a falling anvil made of the stuff: It may be very easy to get hurt.

Gold has plummeted today, leading the latest sell-off in commodities as investors and traders continue to cash out of hard assets.

Near-term gold futures in New York tumbled $36.30, or 4.2%, to $821.50 an ounce. That wiped out the last of the metal’s year-to-date gains. It’s now off 2% from the Dec. 31 closing price of $838.

After last week’s dive in commodities some analysts were expecting a bounce today. But sellers still are swarming. Oil is down about 50 cents to $114.66 a barrel -- the lowest since May 1 -- despite the conflict between Russia and Georgia that is threatening supply disruptions in that region.

Within the Reuters/Jefferies CRB index of 19 major commodities, 13 are in the red today.

The surprise rally in the dollar over the last week has blown out one of the key pillars supporting raw materials prices: Many investors and traders moved into gold and other commodities in recent years to hedge against the falling dollar. With the buck resurging, the appetite for hard assets is quickly waning.

And as gold’s price falls it’s feeding on itself as traders flip to "shorting" the metal, betting on further declines. "Traders are now very aggressive on the downside," said Larry Young, senior trader at Infinity Futures in Chicago. As they say in the futures pits, "It’s so much easier to cut a tree than to make one grow."

Commodities trading is a lot about chart-watching, and "technically the gold chart looks bad," said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. The price has slid below its 200-day moving average, he noted.

That could take gold to between $800 and $810 an ounce in the near term, Zeman said. If it can’t hold at that level, $750 might be the next stop, he said.

But at some point, Zeman noted, gold’s plunge should bring in true investors -- particularly in India. Gold jewelry demand there normally is robust but it slumped in the first quarter of this year as the price zoomed, reaching an all-time high of $1,004.30 an ounce on March 18.

"One of the positives is that you’re going to get the physical-gold buyer back in the market" as prices slump, Zeman said. "The question is when."

Photo: An American Eagle gold coin. Credit: Genaro Molina / Los Angeles Times

Comments

[James Monachino]

All that Glitters in not gold. Having remembered the 1979 - 1980 Gold run up I can tell you there are people who bought gold at the top of the 1980 market and as of today are still not showing a profit. (Price spiked up to around 875 an oz. in 1980)

You are correct in mentioning the CRB index. The index is declining and is in the first phase of what I believe will be a multi year correction. The 7yr commodity bubble is now coming to and end.

It is the end of an old era and the beginning of a new world wide deflationary
environment.
Issues that are fueling the Deflationary Cycle Include:
* Elevated energy prices. (Adding to the World Wide slow down)
* Rising unemployment.
* Slow to falling real wages in the lower and middle working class sector.
* Falling profit margins across almost all industries and service sectors.
* Rising Bankruptcies.
* Stiffening Multi National production and service competition.
* Federal, State, & Local Deficit Spending - Will result in rising taxes and or cutting back of services, employment, and special programs.
* Housing Crisis - has destabilized the underlining asset pricing of various securitized fix income investment classes that has been distributed worldwide.
* Major De Leveraging - of Multi-National Banking and Financing Institutions has created credit conditions difficult for organic business and consumer growth.

Finally ---
Beware: Life long inflationary remedies used in the past will not protect your financial portfolio this time around.

Jim