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Why is the gold price dropping? – Gold Price at 5 year Low
The last couple of weeks has seen huge change in the gold price. It is one of the biggest movements in the gold market since the drop in 2012. But not in terms of the price. What I mean by this is the following: we have seen price drops of this sort before in the last couple of years. In April/May 2013 we saw the price move from £1000 to almost £900. In the June/July of the same year we saw a price drop from around £930 to about £820.
As someone that sits and watches the market day in and day out, I can tell you, we aren’t in unfamiliar territory at all. Naturally with all fluctuations there are reasons attributed to such volatility, whether it be a better-than-expected economic data announcement, perhaps a ceasefire in a war zone or even a fellow commodity tanking, for example the oil price. There is always something that puts pressure or lifts the gold price depending on how it is received. Gold is one of the only asset classes available that is a true receptacle of world events. It is probably the last one. It is a mercurial commodity, not only in composition, but in its ability to adapt and act out world incidents on the grand stage.
So why is the gold price dropping?
The gold price drop in the last week or so is down to the following:
The big news of course this week was about China. On Monday, minutes after the Shanghai gold exchange opened, the gold price plummeted after heavy selling of the commodity. An estimated 33 tonnes of gold were dumped causing a huge slump. This coupled with a holiday in the Japanese market, meant only an increase in the falling price with no counter-weight of a local market. Naturally the rout in the price was exacerbated by stop-loss selling and high-frequency trading. In other news, China IMF – Chinese Reserves Data which in the last 6 years have increased by 604 tonnes and have been an active player in the gold market. It seems prudent for this writer not to draw any conclusions from the coincidence of these pieces of news!
Federal Bank Reserve
Yellen notably in the FOMC minutes has erred on the shy side when citing a rates rise. The FBR know of the importance of such an announcement and have tended to skirt the subject of the rise so as not to cause major disruption to world markets. But the suggestion has always been there. Despite IMF reservation about such an interest rise this year, FRB: Full Transcript of Testimony last week intimated a likely rise by the end of 2015, based on a number of factors such as: a strengthening labor market (US spelling), a necessity to watch a strengthening dollar and to start an interest rates rise early, to give way to a gradual rates rise with a potential for a historically low interest increase.
After all the news and uncertainty that has been lingering for well over a year it would appear that Greece and it’s impending implosion is resolved. With agreements and debt structuring finally underway – all is well – at least for the mean time anyway.
Verdict: – Why is the gold price dropping? Pressure from the dollar and the impending rates rise, the coincidence of a Chinese sell-off and its increasing gold reserves and finally a resolution of the Greek problem has led to a gold suppression. But no matter the reasons, there still seems like something afoot to me – let’s hope the Chinese government haven’t picked up on the article.
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Article by Michael Cooper