Massive Chinese sell-off triggers stop-losses and gives gold a bad day

The gold prices are reaching even lower limits these days. It now crashes to a tragic five-year low. There are several causes identified and unfortunately, they are not so easy to eradicate or fix by the interested party, because their counter-productive nature.

The last time that gold hit this low price was on March 2010. August Gold dropped 2.2 percent, which represents US$ 24.60. This huge loss of value on the previously preferred “safe haven” asset became a fact in the last 18 months, when the bearish market is turning more dramatic every day.

Experts now can see more clearly the reasons that surround the price issue. The constant strengthening of the United States Dollar is now an obvious reason for the gold recurrent losses lately.

Simona Gambarini, an analyst of the commodities market at Capital Economist, still foresees high demand periods for the precious metal in the upcoming months, but she claims that there is a great psychological factor influencing the investor’s behaviour. “Sentiment towards gold is now excessively negative” she said. All the recent events had inflicted great damage on gold’s public image worldwide. Beside this, other popular assets are getting much interesting, seriously distracting investors.

Despite the actual conditions, this financial firm is expecting an important recovery by the end of the year. The forecast number is around the US$ 1200 mark. Also, the expectations for 2016 is really close to the US$ 1400 per ounce. But in the meanwhile, the Australian gold stocks lost US$ 1.5 billion in value during a sudden sell-off. So, again, what are the reason for this aggression to the gold business?

We can begin with the already mentioned US Dollar getting bigger every day. With a growing economy and positive numbers on the FED’s recent reports, worldwide investing interests now reside on the American currency. Added to that, the planned interest rates increase by the Federal Reserve is attracting the crowd. In a microeconomic point of view, they can see how gold miners have decreased their performance and profit numbers, losing even more the investors’ interest. Poor performance and lower profitability had been caused by and increasing debt in the sector and big miners having more mines than they can actually exploit, causing an unnecessary level of costs.

But on Monday, shortly after the Chinese announcement about their gold reserves, a massive sell-off caused the fall of the commodity price from US$ 1132 to 1092 per ounce in just minutes. Fortunately, the prices enjoyed a rebounded later that day, leaving the gold ounce at US$ 1109. The disappointing PBOC’s statements produced a huge unload that leads to a massive stop-losses triggering, increasing the offer and decreasing even more the prices.

Those initial tons became from the Shanghai Gold Exchange. So all begins to be a dream for those who don’t like the precious metal and, in exchange, they look for strong currencies and stocks. The Chinese market looks like its losing interest in gold too, as demand has been decreasing the last few years.

Ben Bernanke, a two-times FED chairman, recently said that the gold is just one way to save your money, but it do not represent, in any way, an exchange method like a fiat currency does. They don’t want that again. With the Greek crisis calming, investors feel braver and courageous to invest in riskier assets like currencies, as always there represents a substantial return.

But hey, there are good news too. Despite the gold prices in US Dollars is getting lower every day that pass, for the Australian’s domestic mining enterprises the story is different. Right now the gold ounce inside the Australian market is on the A$ 1537.71 mark. That’s way above the past years’ prices (between A$ 1300 and 1400), probably caused by the weak Australian Dollar.