Gold on Friday plunged more than $30 an ounce after a better-than-expected US jobs report saw the dollar soar to multi-year highs.
In heavy trade of more than 20m ounces in New York, gold for delivery in April fell $32.33 an ounce or 2.7% from Thursday’s close hitting a low of $1,163.87 an ounce during one of the worst trading days in a year.
Gold is now at the lowest price since mid-November and more than $140 below its 2015 high struck January 22.
Gold’s gains earlier this year were ascribed to safe haven buying amid currency turmoil, a slowing global economy, geopolitical concerns, the fallout of the collapse in oil prices and a debt crisis in the eurozone.
But with the first hike in more than six years likely at the Fed’s June meeting raising the opportunity costs of holding gold, traders refocused their attention on fundamental factors.
Higher rates also boost the value of the dollar which on Friday hit fresh 12-year highs against the currencies of major US trading partners. The greenback has strengthened by more than 20% over the last year.
Ahead of Friday’s market action MINING.com sat down with Rick Rule, Chairman of Sprott Asset Management, at the PDAC mining conference in Toronto and asked him about the impact of the world’s reserve currency on the price of the metal.
“Gold reacts counter to confidence and it would appear that there is a lot of confidence in the market particularly regards the US dollar – the gold price trades inversely to the US dollar. Gold’s done extremely well in every other currency, but the USD has done better.”
Before Friday’s sell-off the gold price spent most of the preceding month on either side of the $1,200 an ounce level, encouraging speculators to suggest the bottom of the market had been reached. Rule disagrees.
“No, it could easily see a thousand. I’m not a technical analyst but the gold chart looks lousy to me and the confidence [in the US dollar and government bonds] looks very very high,” said Rule.
While gold may still see triple digits for the first time since 2009, Rule does not believe there is too much downside left. That’s thanks to the movement of gold from the derivatives market and other paper instruments like gold-backed exchange traded funds in the west to retail buyers of physical gold in the east:
Asked to comment on renowned economist Nouriel Roubini, aka Dr. Doom’s comments in 2013 when gold dropped 28% in value, that gold bugs’ hype about financial Armageddon was counterproductive, Rule shared the sentiments:
“I agree with him 100%. I own gold personally for insurance purposes. I own gold as a store of wealth. But in terms of what would be best for the gold price would be a gradual deterioration in the value of the USD dollar and a the US 10-year treasury.
“The idea that you hold gold in loving anticipation of financial collapse and the whole set of circumstances that would seem to make some of the gold bugs gleeful would involve a dramatic change in my living standard. My living standard is particularly good – I have no particular interest in seeing $6,000 gold.
“For me gold is like an insurance policy. And I have various types of insurance policies, but if you think about the set of circumstances that causes you to get paid – in the context of a life insurance policy someone died. Home insurance means your house burned down. There is no set of circumstances where I am dying to get paid for insurance.”