Gold falls 20% into bear market territory
Gold had lost a fifth of it value since its peak last year as investors move into cash as fears over the eurozone crisis intensify.
Futures contracts for gold were on Wednesday trading 21% down from their high last summer, according to the Telegraph. That signalled gold for June delivery was into bear market territory – when an asset plunges 20% or more.
The spot price for gold was also skirting a bear market at close to $1,544 an ounce, a 19.5% drop from its September intraday high over $1,921.
This fall in the price has been driven by the escalation of the eurozone debt crisis, which is causing investors to liquidate their gold holdings.
While the metal is often seen as a safe haven, at times of extreme market stress, people may start selling their gold to cover losses elsewhere, the Telegraph reports. This behaviour could account for two sharp gold sell-offs in the second half of last year.
Instead of gold, investors are turning to the US currency. The US dollar index, which tracks the greenback’s strength against six rivals, climbed a 13th day to reach a four-month high.
“Gold is just another risk asset,” said Michael Aronstein, the president of New York-based Marketfield Asset Management. “It made you a lot of money if you took the risk eight or 10 years ago.
“A real safe haven would be a pile of high-denomination Swiss franc or dollar notes, stored in a safety deposit box,” he told Bloomberg.
This article was first published on Investment Week