Andy Xie on the plunge in gold prices

After the Flash Crash
The recent crash has cleansed the gold market of speculative liquidity. The demand for gold is mainly from emerging economies that face chronically high inflation. The recent growth deceleration pushes these economies into stagflation. Their demand for gold is likely to be persistent.

At the beginning of the year, I was positive on gold for the second half of 2013. I was expecting a rising dollar and strong stock market to dampen gold demand. As a weak global economy eventually cools stock markets, gold will come back.

Now I believe that gold has bottomed. Speculative money in gold has left. Inflation and slowing growth are favorable for gold. Stock markets are likely to struggle for the next few months. The dollar's rise is pausing for now. It seems that the headwinds for gold are removed and the tailwinds are getting stronger. Gold should perform quite well for remainder of the year. Even a new high is possible.

Retail investors must be vigilant on market manipulation. Physical gold demand is mainly from emerging economies like China, India and Middle Eastern countries. The gold financial markets are in New York and London. The financial players can make money from emerging market retail investors by creating artificial cycles, creating euphoria and panics. Gold buyers should not buy after a price surge. Now is a good buying opportunity.

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