Gold Futures Tumble After New All-Time High


Gold futures turned sharply lower Thursday amid broad-based liquidation on Wall Street and hawkish commentary from the European Central Bank (ECB).

COMEX gold futures, per the December contract, initially rallied this morning, reaching a new all-time record high of $1,684.90 per ounce. However, following ECB President Jean-Claude Trichet’s comments that in spite of euro zone economic challenges, the ECB is still considering additional interest rate hikes, gold futures tumbled to an intra-day low of $1,642.20 per ounce.

The yellow metal was able to pare its losses in afternoon trading, and settled lower by $7.30 at $1,659.00 per ounce.

Silver followed a similar path, as September COMEX futures climbed to an intra-day high of $42.295 but later plunged to as low as $38.47 per ounce.

No Gold Top Until the New Volcker Emerges

Many investors may look at the gold price chart with disappointment and assert it’s too late for them to buy. We disagree.”

The above comment came from a note to clients by J.P. Morgan Gold & Precious Metals analyst John Bridges. There, he wrote that “We’re waiting for a Paul Volcker moment. Volcker became Chairman of the Fed in 1979 and was authorized to take the tough decisions the elected officials did not. It was only a year later in Q3 1980 that gold peaked.”

Bridges went on to say that “We won’t be calling for the gold top until the new Volcker emerges.”

In his report, the J.P. Morgan analyst also showed two long-term charts – the gold price compared to the U.S. debt limit, and the Dow/Gold ratio. The first chart shows that the yellow metal has a considerably high correlation to the U.S. debt ceiling, and with the limit on its way up again, gold is likely to benefit.

As for the Dow/Gold ratio, it reached an all-time low of 1.3 in 1980 and fell to the low single-digits in the 1930s. While it has already fallen from over 40 in 2000 to its current level of 7.5, Bridges argued that going forward, lower levels are likely.