Gold fell another 2.8%, closing at less than $1,600 an ounce for the first time since July.
The metal continued its decline today, after posting the worst week of trading since 1983 last week, as large institutions and hedge funds fled the metal to raise cash. The Comex gold contract closed down $45 at $1,592.50 an ounce.
Despite the most recent declines, the basic reasons behind gold’s rise to records in August still exist. Europe is still facing a debt crisis, Greece still has a real possibility of defaulting on its bonds, and the U.S. is still flirting with government shutdown.
Gold has been the universal safe haven trade for years and, as with any popular trade, it will become crowded and volatile when institutions and hedge funds take out cash.
Gold still has potential to rise, with the Federal Reserve pumping money into the economy, which could return inflation fears to the market. Traders that still believe last month’s fundamentals hold true can look to add their position on signs of gold’s reversal.
The Spdr Gold Trust ETF (GLD, quote) seeks to replicate the performance of the price of gold bullion by physically owning and storing the commodity
The impact of higher gold prices may also show up in foreign currency exchange rates, which presents an opportunity by selling the euro and buying the Australian dollar. Australia is a large gold producing country that will benefit with any rise in gold prices.
In the world of exchange-traded funds, there are the ProShares UltraShort Euro ETF (EUO, quote) and the Australian Dollar Trust (FXA, quote.)