Gold's six percent fall and its biggest decline since mid-2006 today has some investors worried that the precious metal's meteoric rise could be about to turn south, allied to a report that predicts a gold crash down to just $600 an ounce. However, rumors of gold's demise have been greatly exaggerated.
Gold futures closed at $945.30 an ounce on the New York Mercantile Exchange today while silver also sank eight percent as profit-taking kicked in following gold's surge past $1,000 last week.
However, a report out of India Daily claims that "A sharp rally in US Dollar and a crash in gold and other precious metals markets are imminent," predicting a whopping 40 percent fall to $600 an ounce.
"The latest World Gold Council (WGC) report showed that gold imports by India declined 72 per cent to around 24 tonnes in January this year following a 67 per cent decline in the quarter ending December 2007," states the report, adding that gold demand from China and other Asian countries has also cooled.
However, the drop in demand cited in the report is not correctly clarified. The fall in imports is largely a result of jewelers being priced out of the market. Other investors are eagerly filling the gap and snapping up supplies, which is why gold prices continue to rise.
"The fact is that the stunning run-up in gold prices in the past few years has been driven almost completely by investment demand. Jewellery demand, which remains the cornerstone of the market, has been largely forgotten," writes the Financial Post's Peter Koven.
"In the 1990s, jewellery made up about 85% of gold demand. Today, the precious metals consultancy GFMS Group puts the number at a little more than 60%. That decline has been more than offset by buying from exchange-traded funds, commodity funds and other investment sources."
"Experts believe these investment sources could continue to drive gold higher well into the future," concludes the report.
In addition, gold has soared because gold mining and production has been stifled, hitting a 10-year low and causing demand to outstrip supply.
Taking into account inflation adjusted figures, gold would have to top $2,200 to match its previous all-time 1980 high.
Major investors across the board are predicting gold to continue its ascent towards $2,000 an ounce and even higher.
Eric Sprott, founder and chairman of Sprott Asset Management told Bloomberg News last week that "Turmoil in global credit markets may lead to the collapse of a North American bank, pushing bullion prices up to $2,000 an ounce as investors seek a haven in gold."
"We don't see any reason in this cycle why gold shouldn't reach its real all-time high, which is actually about $2,200 an ounce," David Garofalo of Agnico-Eagle Mines told reporters in January.
World renowned investors like Jim Rogers have already dumped their dollar assets and moved heavily into gold. Rogers also predicted gold would break the $2,200 barrier this week on a Bloomberg News TV segment.