Report: Limited reaction to Cyprus spells doom for gold price

The gold price dropped through the $1,600 level on Tuesday as yet another forecaster joined the chorus calling an end to gold 12-year winning streak.

The yellow metal was changing hands at $1,595 an ounce in afternoon trade in New York, losing over $10 since yesterday's closing price.

Gold is now down 4.8% in 2013 and is on track for the first back-to-back quarterly loss since 2001 which would mark a gold market "recession" (the official definition of an economic recession is two subsequent quarters of negative GDP growth).

CPM Group on Tuesday added its voice to that of Barclays, Goldman Sachs and others to pour cold water on gold bugs' predictions of a "collapse of the global financial system," and that "the monetary accommodation that we have seen will lead to hyperinflation:"

"What we see is weak, muddle-through economic growth for the next few years," [Rohit] Savant [CPM Group's senior commodity analyst] said. Savant said he is confident in calling for the average gold price to drop from 2012, as investors are becoming increasingly sensitive to gold's historically high price.

He added that investors are likely to buy gold only after a sharp price drop. The metal's limited gain after Cyprus's near economic meltdown suggests that a lot of the bullish factors that had lifted gold in the past several years are already factored in, Savant said.

CPM predicts overall investor demand for gold to drop again this year after a 5% pullback in 2012 according to its estimates. Outflows from gold-backed exchange traded funds hit a record in February and year to date net selling of ETFs constitutes over 180 tonnes.

MarketWatch quotes a market note from HSBC showing a different interpretation of the impact of the Cyprus crisis on gold:

“Rising risks of confiscation has bullish ramifications for gold, in the longer term as investors may find the hard-asset qualities of bullion more attractive than ‘riskier’ bank accounts,” metals analysts at HSBC said in a note.

A research note from Germany's Commerzbank last week also took a different tack arguing that the events in Cyprus has benefited the precious metal's safe haven allure in such a way that it "appears to be immune to the latest outflows from the ETFs".

Image of demonstrations in Cyprus via YouTube.