When Gold Prices Collapse, It’s Time for Investment Banking, Not Mining Companies
Gold and other precious metals fell sharply on Wednesday, as investors fled the financial markets.
The metal plunged as much as 8.7% to $1,300 an ounce, down from its record high of $1.3170 an ounce last week.
The decline came amid the worst-ever sell-off in gold prices, as traders sought refuge in cash amid a global stock market rout.
Gold is a commodity that has been heavily influenced by the global financial crisis and has lost a quarter of its value over the past five years.
It is traded for roughly $3,600 an ounce on exchanges.
On Wednesday, gold fell more than 2% to a four-month high of about $1:29,280.
Gold is now trading for about $2,500 an ounce.
Gold stocks are up 1.5% over the last year.
A Bloomberg survey of 200 leading global investors found that investors are weighing gold in anticipation of a strong dollar and continued geopolitical tensions.
Investors are worried that a collapse in gold could drive down the value of the dollar and put a dent in the global economy.
A decline in the price of gold would also increase the risk of the United States losing its role as the world’s dominant reserve currency, said Jim Molloy, head of the London-based global asset management group MSCI Gold Partners.
The decline in gold has been the most significant financial setback to a U.S. economy that has shed more than 10 million jobs in the past year.
Gold has long been a hedge against inflation and other risks.
Its value is set to plunge in the face of continued political turmoil in China, and other countries, including Russia and Europe, are also tightening monetary policies to shore up the economy.
The central bank last week signaled it would cut its benchmark interest rate, from 1.75% to 0.75%, as it weighs whether to raise interest rates.
Gold stocks in the S&P 500 index rose 1.4% to 2,726.56, while gold futures in London rose 2.7%.
Gold fell to its lowest price since September 2009, when it hit a record high in September 2010 and hit a four year high.
It also slid from a record in January 2015, when its value was $1 a ounce.
Gold has become increasingly valuable to investors since China lifted its crackdown on gold imports last year and other governments tightened controls.
Its price plummeted in the first quarter of 2017, but it rebounded this year, hitting a record $1 an ounce earlier this year.
China, India and others have also tightened controls on gold, making it harder for investors to access it.
Gold was the biggest gainer on Wednesday on Wall Street.
The benchmark S&P 500 lost 2.2% to 1,724.23.
Gold shares rose 2% on the New York Stock Exchange, while the Russell 2000 climbed 2.5%.
The dollar fell to 97.65 US cents at 1:30 p.m. in New York, its lowest level since May 2009.
The yen also fell to 96.15 Japanese yen, its weakest level since November 2014.
The greenback weakened to 96 US cents from 96.45 yen.
The European Central Bank raised interest rates Wednesday, a sign the European Union will continue its monetary stimulus program, but traders and investors said the Fed may not be able to continue pumping money into the economy until the U.K. and other markets begin to recover.