Gold saw its steepest fall in a decade overnight last night, closing about 9% lower at $1,742 per ounce after peaking at $1,911 on Tuesday.
The drop came on the back of positive economic data in the US. There was a sharp increase in July orders for durable goods alongside expectations of further quantitative easing that buoyed the markets this week as Treasury yields lifted.
However, gold still sits around 40% higher than it did at the start of the year.
Philip Lawlor, investment strategist at Smith & Williamson, believes the market is seeing the flipside of the rally in equities.
Jackson Hole
“The catalyst for the fall was the anticipation of what Ben Bernanke will say tomorrow at the Jackson Hole conference,” he said. “However, I believe the travelling will be better than the arriving.”
Lawlor was circumspect about what the Federal Reserve Bank chairman would announce tomorrow.
“Long-term economic headway may not be as assured from what Bernanke has to say tomorrow, and the markets are unlikely to think the new approach will be as aggressive as previous programs,” he said.
Lawlor believes this in turn could lead investors back to gold, which he thinks is a risk-on strategy.
“Fundamentally, the drivers for gold remain the same,” he said. “There is presently no data that indicates the trends will change.”
He said the real driver for gold is still record low interest rates, with gold as a zero-yielding asset.
Lawlor also warned that investors should not underestimate the effect of the eurozone’s still unresolved economic problems.
“Today’s drop may turn out to be an attractive re-entry price for those who missed gold earlier,” he said.
