Thread: Gold Prices Fall 3.1% (Bubble Time?)

JANUARY 4, 2011, 3:07 P.M. ET.

Gold Prices Fall 3.1%


By TATYANA SHUMSKY

Gold prices fell as investors returned from Christmas vacation, cutting gains made on low volumes and small trades over the past two weeks.

Thin trading volumes lifted gold futures 2.7% in the past two weeks as the number of market participants shrunk during the holiday period and the influence of each trade tended to have an outsized impact on prices.

That trend reversed Tuesday, with an influx of investor selling erasing recent gains. Gold prices tumbled while trading volumes roared to about 200,000 contracts Tuesday from just 77,611 contracts on New Year's Eve.

"You're getting traders coming back into the market, and a lot of money managers are cashing in last year's gains and starting a new year," said Ira Epstein, director of the Ira Epstein division of the Linn Group. "This market has labored most of December to put on a minor gain."

The contract for January delivery settled down $44.10, or 3.1%, at $1,378.50 a troy ounce on the Comex division of the New York Mercantile Exchange, its largest percentage decline since last July.

Gold prices tumbled past the $1,400 mark as traders cashed in profits. The yellow metal had rallied 30% in 2010, but retreated on the second trading day of 2011 as investors moved to realize those gains.

"With everyone so bullish coming into the end of the year, the market is ripe for some pulling back," said Stephen Platt, analyst with Archer Financial Services. "You could be poised for a good correction, maybe down to $1,350."

While Tuesday's drop tapped the breaks on gold's historic bull run, analysts said the broad economic drivers behind its rise still are in place.

"The big fundamentals haven't changed, they're just not headline news right now," Mr. Epstein said.

Gold's 2010 rally was underpinned by concerns about Europe's sovereign-debt crisis and the region's fiscal stability, which had been rocked by bailout requests from Greece and Ireland.

Meanwhile, a $600 billion year-end monetary-stimulus package from the Federal Reserve saw U.S. investors worry about long-term inflation and purchase gold as a hedge.

"Many of those issues, as well as too much restraint on strong growth in China, will continue to keep investment interest in gold," said Carlos Sanchez, director of risk management at industry consultancy CPM Group. "The long-term trend still remains for higher prices."

http://online.wsj.com/article/SB1000142 ... 46428.html

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