Everything's Going Wrong For Gold Right Now

Gold barREUTERS/Eliseo Fernandez‘…further downside from here…’

Gold has been tumbling and it’s currently straddling $US1,200, a level it hasn’t seen since June.

This comes in the wake of the Federal Reserve’s surprise announcement on Wednesday that it would begin tapering its massive bond-buying program, a move considered to be bullish for the dollar and therefore bearish for the yellow metal.

UBS precious metals analysts Joni Teves and Edel Tully believe there’s more selling coming for gold.

“Ultimately, the Fed’s decision should weigh down on gold and open up further downside from here,” they wrote. “The gold market may have initially taken some comfort from the Fed’s softer forward guidance which hinted at keeping the highly accommodative policy stance in place…In spite of this, the tone was still generally more upbeat: risks to growth and inflation were characterised as ‘more nearly balanced’ as opposed to ‘downside risks’ being highlighted in the past. Our colleagues in US Economics continue to anticipate that the Fed will wind down QE towards the end of next year and announce the first rate hike by mid-2015. Gold is bound to struggle as the Fed pursues normalisation.”

Teves and Tully also think it’s bearish how well stocks did in response to the taper.

“The positive reaction in equities further poses a challenge for gold,” they wrote. “That stock markets took the Fed announcement well reflects the recognition of the distinction between tapering QE and rate hikes. In a sense it also highlights the overall positive sentiment towards the macro economy. Equities are in fierce competition with gold for investor dollars and this year’s trend of rotation away from gold into growth assets is expected to continue into 2014. Our equity strategists are anticipating around 15% upside for global equities next year.”

A strong dollar and an attractive stock market are bad news for gold. Meanwhile, gold’s status as a safe haven is under threat from the rise of digital currencies like Bitcoin and Dogecoin.

On top of all of that, India — the biggest consumer of gold — has been cutting back.

Everything seems to be going wrong for gold.

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