Sudden drop in gold prices hurts investor confidence

Investors in gold have lost confidence in the yellow metal in the wake of swift and sudden decline in price to $ 300 per ounce within three days, experts said.
Gold traders in Jeddah expressed different views on the future of gold prices. One trader said the prices will return to normal levels ranging between $ 1,500 and $ 1,700 an ounce, whereas another trader predicted that it will go down to $ 1,000 an ounce.
Abdullah Al-Amari, owner of a chain of gold stores in Jeddah and member of the gold committee at the Jeddah Chamber of Commerce and Industry (JCCI), said there were no indications that the price would go down in a three-day period which has never happened before as the lowest fall registered was $ 100 at one time.
According to him, the price plunge is not clear and no signs existed for the prices to reach that level, notably the quantity of gold sold by Cyprus is meager and does not entail such price downfall. The price of dollar or the US economic recovery can not be blamed for this downturn, he added.
He expected the gold prices to return to normal levels ranging between $ 1,500 and $ 1,700 an ounce in the coming period.
Dr. Faiz Al-Awlaqi, deputy chairman of the national committee for precious metals, agreed. “There may be undeclared interests at the level of major central banks and that manipulations or small traders have no role to play in this decline,” he said.
He said the picture will not be clear unless we know the quantity of gold set for sale, especially some of the European countries are on the verge of collapse and may be forced to sell gold reserves, though they could only sell 30 percent of their reserves in accordance with deals signed between the European Union (EU) countries.
He expressed fear that investors will lose confidence in the gold sector due to the swift downturn in gold prices.
Dr. Mohammed Al-Hashdi Al-Ammari, member of the gold committee at JCCI, predicted that gold prices will stabilize at low levels compared to previous rates but would possibly experience a period of fluctuation to hit as low as $ 1,000 an ounce.
Al-Ammari cited some indications of the gold price downfall trend among which is the drive of European countries, such as Cyprus and Spain, to sell part of their gold reserves to get financial liquidity and revive their ailing economies.
However, he ruled out that the European countries will go ahead with this plan for the time being in the existence of global agreements that will deter gold price decline drastically.
He added that correction of gold price is inevitable, especially the price has surpassed its fair value in light of prevailing economic situation in the world which is estimated at $1,000 an ounce, which reflects the true value of the yellow metal.