Gold may have suffered its biggest one-day decline ever this week as investors fall rapidly out of favor with the safe-haven asset, but that hasn't stopped some gold bulls from standing firm.
According to Clifford Bennett, chief economist at financial services firm The White Crane Group, the perception of gold among investors has changed but the forces driving the precious metal have not.
He says that once traders with short positions in gold start to unwind their bets, the price of gold should rally as quickly as it fell over recent trading sessions.
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"I sincerely believe that the moment the now significant short position holders begin to take profit, that this market will rally at least 50 percent of the fall just seen, just as rapidly," Bennett said in a note.
Disappointing U.S. and Chinese economic news in recent days and fears that Cyprus, and possibly other central banks, could dump their gold reserves have fueled negative sentiment towards the precious metal.
Gold prices have plunged about 16 percent over the past week to hit a two-year low of $1,321 per ounce on Tuesday, later rebounding to $1,367. The market suffered its sharpest ever one-day slide on Monday.
In a bid to stabilize volatility in gold markets, the Chicago Mercantile Exchange Group said it has raised collateral requirements for trading in benchmark gold, silver and other precious metals futures contracts, effective at the close of business on Tuesday.
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And analysts say that if gold falls below important technical levels that it could have further to fall.
"If you look at technical levels, there is further support at $1,300, but if that were to be breached then you could be looking at falls to $1,250," said Peter Harper, director of distribution at Betashares Capital.
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