Gold price falls and Gold Stocks with it

Gold is down to $776 and the major gold stocks are all feeling the pain, Anglo American (NASDAQ:AAUK) leads the way down 17% to just $9.82 a share.

Gold is traditionally a safe haven for investors when markets are uncertain - which would suggest that the price should be robust in the current climate.

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Last week, the World Gold Council said that demand for gold bullion was at a record high. Consumers bought 121 per cent more gold coins and bars in the third quarter of this year than they did during the same period in 2007.

So fund managers and commodities traders all say they are surprised there has not been more of a spike in the gold price as a result.

The reason, they agree, is most likely to be the effect of deleveraging, particularly among hedge funds.

"You would have anticipated the price would have risen more rapidly than it has, based on the demand for physical metals, but the activity in the futures market has to some extent offset this," says Nicholas Brooks, head of research at ETF Securities.

Deleveraging can be blamed for both the price spikes and the price slumps in the past few months as hedge funds have been closing both long and short positions, argues Mark O'Byrne, executive director of Gold and Silver Investments, which sells gold bullion to investors.

 

Yamana (NYSE:AUY) is down 10% and the whole sector is taking a nose dive today:

At some point gold and the stocks that make up the sector will find some value into investors portfolios, if only as a long term hedge.

Disclaimer: No positions in any of the securities mentioned in this publication.