This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.guardian.co.uk/business/nils-pratley-on-finance/2013/apr/15/gold-price-falls-bull-market-over

The article has changed 2 times. There is an RSS feed of changes available.

Version 0 Version 1
Gold has had a good run but don't be surprised now that it's falling Gold has had a good run but don't be surprised now that it's falling
(6 months later)
Gold has been a one-way bet – upwards – for a decade now. In the early years, it was carried higher with the rise in all metals prices. As the west's banking system crashed in 2007-09, gold was a place to hide. In recent years, central banks' quantitative-easing programmes have done the trick. Amid the vague feeling that no long-term good will come of "funny money", gold has lived up to its reputation as the thing to buy when you don't know what to buy.Gold has been a one-way bet – upwards – for a decade now. In the early years, it was carried higher with the rise in all metals prices. As the west's banking system crashed in 2007-09, gold was a place to hide. In recent years, central banks' quantitative-easing programmes have done the trick. Amid the vague feeling that no long-term good will come of "funny money", gold has lived up to its reputation as the thing to buy when you don't know what to buy.
And now? The price is down 15% in two days to about $1,400 (£914) an ounce, which counts as a serious reappraisal since it follows an 18-month period in which the price meandered between $1,600 and $1,800.And now? The price is down 15% in two days to about $1,400 (£914) an ounce, which counts as a serious reappraisal since it follows an 18-month period in which the price meandered between $1,600 and $1,800.
What's going on? First, there's nothing like the appearance of a forced seller to provoke a reassessment of what the "real" price of the asset should be. For gold, it has been the news that Cyprus might be obliged to sell part of its gold reserves to contribute to the cost of its bailout. Cypriot gold reserves are not large. But if a template (that dreaded word in eurozone circles) is established for stricken countries to tap their gold reserves in an hour of need, then we may be in new territory.What's going on? First, there's nothing like the appearance of a forced seller to provoke a reassessment of what the "real" price of the asset should be. For gold, it has been the news that Cyprus might be obliged to sell part of its gold reserves to contribute to the cost of its bailout. Cypriot gold reserves are not large. But if a template (that dreaded word in eurozone circles) is established for stricken countries to tap their gold reserves in an hour of need, then we may be in new territory.
Second, the QE-leads-to-inflation argument looks less forceful when inflation is arriving only in dribs and drabs. The Bank of Japan's adoption of turbo-charged QE, for example, has been greeted with general scepticism about when its 2% inflation target will be met. The mega-inflation theory may be proved correct in the end, but not all gold speculators are equipped to ride out the dips.Second, the QE-leads-to-inflation argument looks less forceful when inflation is arriving only in dribs and drabs. The Bank of Japan's adoption of turbo-charged QE, for example, has been greeted with general scepticism about when its 2% inflation target will be met. The mega-inflation theory may be proved correct in the end, but not all gold speculators are equipped to ride out the dips.
Then there's China, whose economy is becoming less commodity-hungry. If the economy itself is also growing less quickly than expected – though 7.7% is not so terrible – there's another negative in the mix since the price of gold rarely becomes wildly unhooked from the price of oil.Then there's China, whose economy is becoming less commodity-hungry. If the economy itself is also growing less quickly than expected – though 7.7% is not so terrible – there's another negative in the mix since the price of gold rarely becomes wildly unhooked from the price of oil.
Of course, sentiment could turn on a sixpence with a big geopolitical blow-up (North Korea?). In the meantime, though, should we really be surprised that a 10-year bull market could be over? Gold has always run on long cycles, but a decade is still a very long time.Of course, sentiment could turn on a sixpence with a big geopolitical blow-up (North Korea?). In the meantime, though, should we really be surprised that a 10-year bull market could be over? Gold has always run on long cycles, but a decade is still a very long time.
Our editors' picks for the day's top news and commentary delivered to your inbox each morning.