Tallahassee Journal

Gold prices dive 5% to $1,487 an ounce

Gold prices dive 5% to $1,487 an ounce

The price of gold plunged 5% Friday to its lowest level in three years as economists grew increasingly worried about the economy’s forward momentum heading into spring. The price of gold futures for June delivery finished the week at $1,487, down $78 an ounce. It’s the lowest close of the precious metal since it peaked at $1,889 in August 2011.images167834_The_financial_crisis_Wallpaper_Gold_Gold_bullion_on_the_scales_013950_

Nichols says that some hedge funds are getting out of gold and moving to stocks. “They’re very performance-oriented funds, and gold is not performing for them,” he says. “We’ve seen a continuing shift from gold to equities.” Precious metal investors appear to losing their confidence in gold as a safe-haven investment from the risks of inflation or a major stock market meltdown. There is also growing concern that as the beleaguered banking sector in Cyprus worsens, citizens and investors there and in other parts of the debt-laden eurozone will ratchet up gold sales to raise cash.

However, a big gold sale by the government of Cyprus is unlikely, Nichols says: It’s against European Union rules to sell gold to cover deficits, and Cyprus doesn’t have enough gold to produce such a large movement in the market. The yellow metal’s slide into bear market territory marks its 14th bear market since 1975, according to data compiled by Bespoke Investment Group. Gold has seen its per-ounce price plunge more than $400, or 21%, since its peak of $1,888.70 some 20 months ago.

Stock and bond investors were mostly shrugging off the big action in gold prices. Benchmark indexes finished flat to slightly lower after four straight days of gains, including two days of higher record closes the past two days for the Dow Jones industrial average and the broader Standard & Poor’s 500 index. So how far can gold fall? Past bear markets offer some insights. The average gold decline since 1975 is 31.6%, Bespoke says. And gold typically falls an additional 14% after its first close in bear market territory, historical data show. If this bear market carves out a similar pattern, gold would bottom out at roughly $1,281 an ounce.