Uncertainty in Europe following last weekend’s elections in France and Greece pushed prices for gold futures contracts to a four-month low of US$1,595.50 per ounce before they rose slightly to close at US$1,604.50 on May 8.
Comex gold prices not only fell below what was the strong technical support level of US$1,613, which held in April, but also the psychological barrier of US$1,600 – spurring fear that gold prices could plunge to the next level of technical support: $US1,530, according to Vancouver gold analyst and Border Gold owner Michael Levy.
Earlier this year, gold prices topped US$1,800 per ounce.
Gold’s plunge had a negative impact on B.C.’s fourth largest company ranked by revenue. Goldcorp Inc.’s (TSX:G) shares were down 4.26% on the day and more than 38% from 52-week highs achieved in September.
“Some think, if things are risky, I’ll invest in gold,” Levy said. “But, when investors really become risk averse they don’t want anything except [U.S.] cash.”
Levy explained that the U.S. dollar remains the world’s reserve currency and that Europeans, Asians and Americans all flock to the U.S. dollar because they believe it is more reliable and convertible than any other asset.
The Canadian dollar dipped to a three-week low of $1.0023 against the U.S. greenback, and Levy suggested that it could fall as low as $0.95 to the U.S. dollar.
“I don’t think it will. I believe par is going to be a bit of a magnet,” he said.
Much depends on whether the situation in Europe gets worse with Greece defaulting on debts, forced out of using the Euro as a currency and prompting investors to fuel contagion to other European countries, Levy said.
“If you think that things will implode in Europe and that the U.S. will have problems because of unemployment numbers, then you will see the U.S. dollar get increasingly stronger,” Levy said. “If that happens gold prices are going down as are other markets because investors will get risk averse.”
