CAIRO: Gold prices continued their precipitous slide over the past week, as the industry quickly closes in its third straight week of price decline.
Industry experts worry that gold, typically a stable investment opportunity during times of economic turmoil, could continue its decline in value and further shake investor confidence.
Prices are currently wallowing at their lowest levels since early fall 2007. As of the end of the trading session on Monday evening, international markets valued gold at around $730 per ounce, down from a six-month high of around $980 in mid-July, according to GoldPrice.com.
Beginning in the second week in September, as Lehman Brothers declared Chapter 11 bankruptcy and the financial markets became toxic, gold prices shot up, gaining around $150 in 10 days.
But today, those gains have been erased and the beleaguered price has yet to show meaningful signs of recovery.
By the beginning of October, one gram of 24 carat gold sold for LE 151. Yesterday, that price fell to LE 137.
For years, gold prices showed consistency and the market earned a well-deserved reputation as a stable investment.
Beginning in early 2002, however, prices began to inch upward from around $300 per ounce. Over the next four years, prices doubled.
“I know [gold prices] benefited from expectations of economic growth globally, noted Simon Kitchen, economist at investment bank EFG Hermes.
“People see it as a hedge against inflation, which was a big concern until recently, he added, explaining the strength of gold prices up until a couple of months ago.
The $200 decline over the past week and a half represents the volatility that rampant speculation has injected into the gold market in the past several years.
Industry experts, however, believe that uncertainty and a lack of confidence in the financial systems have also contributed to volatility in the gold market.
“When this crisis happened, argued Rafik Abbassi, head of the gold committee at the Egyptian Federation of Industries, “some companies took money out [of gold] and others put their money in gold, so prices went up and down.
Abbassi’s interpretation of the volatility underscores the extent to which the latest financial crisis shook confidence even in industries which were considered to be among the most stable.
Gold trading on the international markets, however, showed signs of life in two recent sessions, closing up on Friday and Monday after closing down in 10 out of 11 consecutive trading sessions.
Continued gains made by the US Dollar in the currency markets are another contributing factor to the recent decline in the price of gold.
As of Monday evening, the dollar stood at $0.8 on the embattled Euro and $.64 on the British Pound.
“Now that the dollar is strong, gold is weakening against the dollar, argued Kitchen, adding that gold has remained strong against a weaker British pound and euro.
Investors commonly use gold as a hedge against the dollar, meaning that the value of gold is typically inversely proportional to the value of the dollar.
Experts also noted that the decline in oil prices has been a drag on gold prices.
Abbassi also blamed the media for gold price volatility.
“The media plays a big part in this subject, he said, arguing that the media has aided in creating an atmosphere of uncertainty around gold prices.
Abbassi grew adamant, however, in defense of gold when asked whether it could be counted on as a stable investment going forward.
“You can’t trust any currency, he said, “and the gold is a basket of all currencies. All currencies play a role in the gold price.
In the near-term, however, Kitchen sees continued price swings, given the uncertain economic climate.
“I think you’re going to see volatility in all financial and commodity markets, he said.
