The precious metal suffered its sharpest price drop in three decades, as the frenzy that drove gold to fantastic heights in recent years reversed course with a vengeance.
Gold shriveled more than 9% on Monday, its worst drubbing since 1983. It’s down more than 13% in the last two trading days. The loss in gold preceded Monday’s bomb attacks in Boston.
The losses have been agonizing for individual investors who poured in during recent years. Many were trying to salvage retirement accounts decimated by the financial crisis.
“Momentum investors are in full panic mode,” said Ed Moy, chief strategist at Morgan Gold in Irvine. “They didn’t know much about gold before they got in. They got in because it was hot and they were following the crowd. These investors are panicking.”
The pressure on gold carried over to the stock market, where the Dow Jones industrial average skidded nearly 266 points Monday.
Gold surged over most of the last decade, especially after the 2008 global financial crisis as investors scrambled for a financial safe haven. Gold peaked just shy of $1,900 an ounce in August 2011 and seemed on course to hit $2,000.
But it never made it and, after trading around $1,800 last October, had been on a steady decline until heavy selling set in Friday. It closed Monday at $1,360.60, down $140.40.
Gold has been pummeled by numerous factors, including improvement in the U.S. economy and the absence of severe inflation, both of which reduce its appeal as a hedge against financial catastrophe.
The immediate trigger Monday was a slowdown in Chinese economic growth, which raised fear that the intense demand for gold throughout Asia would decline.
Last week’s selling was driven partly by speculation that Cyprus may have to sell part of its gold reserves to pay its sizable foreign debt. That sparked concern that other troubled European nations, such as Spain and Portugal, might have to take similar action.
Increasingly bearish Wall Street analysts also have played a role, with investment bank Goldman Sachs and other firms predicting price declines.
And then there’s the simple fact that gold prices had plateaued, which prompted aggressive traders to head for the exits.
That’s not good news for individuals who have counted on the metal.
Randi Mavestrand, a 56-year-old makeup artist, began investing in gold in 2006 at the urging of a friend, and eventually turned $12,000 into $30,000.
The Los Angeles woman sold at the end of last year for tax reasons, but put $20,000 back in during January. Mavestrand, who invested to help fund her daughter’s college education, doesn’t know how much she’s lost because she’s afraid to check.
“The little that I have in the world is invested in gold and I’d been doing well for a very long time,” Mavestrand said. “It’s been pretty great. But now it feels pretty awful.”
Many small investors were enticed by breathless come-ons from investment firms, mistakenly viewing gold as stable and conservative rather than as a highly volatile commodity, as it long had been.
Years ago, gold bugs had to buy and store actual gold bars. In recent years, the emergence of a crop of investment products, primarily exchange-traded funds, has made it possible for small investors to dabble in gold with a few computer keystrokes.
Gold bulls remained as enthusiastic as ever Monday, with many people viewing the sell-off as an ideal buying opportunity.
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Gold loses luster among small investors amid sharp price drop – Los Angeles Times
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Gold loses luster among small investors amid sharp price drop - Los Angeles Times
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