At two-year low, gold market 'horrendous'
The gold market dropped like lead on Monday, with the price slumping to a two-year low.
“In 33 years, I have seen some ups and downs, but never a blood bath like this,” said Eddie Lowy, owner of Banner Coin Exchange, Downtown.
Experts blamed the turbulent trading on reasons ranging from the Japan government's effort to end deflation, an unexpected slowdown in China's economy, to speculators buying and selling gold bullion without enough physical metal in their possession to settle trades.
Gold prices fell 9.3 percent on Monday, tumbling $140.30 to $1,361.10, the biggest two-day drop more than in 33 years. On Friday, gold tumbled 4.1 percent.
Overall, gold is down 20 percent in 2013, and nearly 30 percent from its all-time trading highs over $1,900 per ounce in September 2011. Gold had climbed every year since 2001, as investors bought the metal both as protection against inflation and as a so-called safe haven.
Yet gold prices are nowhere near the lows of the late 1990s, when the precious metal hit about $250 per ounce.
“I have been inundated with calls from customers,” Lowy said. “About 90 percent were sellers and about 10 percent buyers. Of the buyers I have only been able to do business with about half because when I call New York or Boston to order replacement product, the brokers have doubled or tripled commissions or flat out refused to sell.”
Lowry said one customer came in to buy coins from him, saying major dealers stopped selling.
“I have never seen anything as horrendous. ... Fear and emotion control any financial market, stocks, bonds, commodities; it's happening so quickly,” Lowy said. “It reminds me of the 1987 stock market crash. It was a free-for-all.”
Even so, gold dealers said Monday they expect prices to stabilize and head back up. But they were divided on when.
Louis Stanasolovich, an award-winning financial planner and CEO of Legend Financial Advisors in Ross, said, “Gold could be down for a while, unless there's a panic around the world, but gold will eventually come back. It may not be now.”
In 2010, when gold was on its way up, Stanasolovich said he expected it to hit $2,000 within five years, and $3,000 over 10 years.
“We came close to $2,000, and it's still possible we could hit $3,000 in ten,” he said.
Stanasolovich said his firm recently sold about half its position in gold because “we didn't think it would appreciate. ... Now we're thinking about selling all of our position,” which it holds for the firm's 401(k) plan and for clients.
Stanasolovich believes the decline is being caused by the Japanese government's effort to stimulate its economy by artificially increasing the supply of money, which reduces interest rates. The policy reduces the value of the Japanese yen, making it cheaper than the U.S. dollar. As the dollar appreciates in value, that drives the price of gold lower, he said.
Gold's decline to a two-year low is “close” to a buying opportunity, said John Taylor, chief executive of currency hedge fund FX Concepts LLC in New York. He predicted gold will stabilize between $1,250 an ounce and $1,400 and that the metal is attractive at $1,300. “The governments are very much involved,” Taylor said. “They don't want deflation.”
Ted Young, owner of Young's Jewelry and Coins in Rochester in Beaver County, said the gold market will straighten out in a month or so before it starts going back up. “The (Federal Reserve) keeps pumping money into the economy, so it's got to turn around,” Young said.
Mark Roup, owner of Gold Buyers of Pittsburgh, an area dealer with nine locations, said, “I think the price from here will just bounce back. I think gold will go up to $2,000 in the next year. Any time the price goes down, its gets investors in — that's what we've seen.”
Pittsburgh-area gold dealers said the volatility hasn't hurt their businesses, generally because most customers are selling because they need the money, or they aren't up to date on gold price trends.
“The price of gold would have to dive by $500 to make a difference” in customers selling, Roup said.
The price of gold will affect jewelry, but it doesn't happen quickly, said a spokesman for Goldstock Jewelers, Downtown. That's because prices at the counter include more than the market price for materials — the design and brand, as well as costs for manufacturing and profit for the seller. The price of diamonds hasn't changed, for example. Plus, it is unlikely a piece is entirely gold — typically 14- or 18-karat gold is used, which are about 58 percent and 75 percent gold, respectively.
There is little call for gold jewelry as an investment, said John Walker, director of coins for Treasure Hunt, a Pittsburgh-area gold dealer with nine locations.
Despite the fall in prices, customers are still coming in to sell, Walker said. “We post our prices so people can see what the market's up to,” he said. Most transactions are in gold or silver coins, which are priced by weight.
The face value of an one-ounce American Eagle gold piece — $50 — is a non-issue, and on days like Monday, prices change minute-by-minute, he said.
Bloomberg News and Marketwatch conttributed to this report. John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or firstname.lastname@example.org.