In October, the dollar appreciated, pushing its indices to a four-year high. Euphoric stock markets and a strong dollar pushed gold lower on the back of weakness in other commodities and the collapse in oil prices. The technical support of $1.180 did not hold and gold finished the month with a loss of 2,87% at $1.1173,48.
In addition, several mining companies reported disappointing data in the third quarter. However, it should be emphasized that this slowdown follows several positive quarters and does not represent a return to the dark days characterized by excessive promises but low returns. The dramatic underperformance of gold stocks in September and October goes beyond any changes in fundamentals and even beyond the normal beta these stocks have historically experienced relative to gold. Much of the sell-off seems indiscriminate.
So, what conclusions can we draw? After reaching a peak of $1.921 at the end of 2011, the price of gold corrected in 2012. This correction turned into a bearish cycle in 2013 whose amplitude and duration exceeded all forecasts. All of which brings us back to two precedents. Gold and gold stocks experienced a similar fall in the down markets of 1996 and in 2000.
The negative sentiment towards this sector was similar and the central bank sell-off of gold is reminiscent of the sell-off in public traded products we are seeing at this stage. The market context, then, is similar to the collapse of 2008 where every time it was believed to have reached the bottom a new wave of sales intervened to push further downwards. It seems that concern has reached levels comparable to the lows of these precedents.
Perhaps another sell-off awaits us and perhaps we will have another tax-loss pressured end of the year. But if we look at the difficulties that the gold market has faced in the last two years, we could even be at the reckoning and close to the bottom. Given all of this, the most powerful driver for gold is when confidence in the US is under pressure. The gold bear market of the late 90s ended with the bursting of the internet bubble.
Confidence dropped and the dollar embarked on a long-term downtrend. The negative backdrop of 2008 reversed in the wake of the outbreak of the credit crisis. Once the panic selling eased, the dollar and gold rose together, becoming safe havens, although the dollar stopped its run while gold continued.
Currently, trust in the US is high. There are no signs of threats, the economy is gradually improving and the Fed is expected to normalize monetary policy without any bumps. For all of these reasons, we believe it is likely that gold will continue to suffer until some element intervenes to disturb the sleep of US investors.
