Ever since the Lehman Brothers crisis erupted in 2008, gold has given super returns in the last six years. In the last one year gold is down as economic recovery around the world has gathered steam. Here are the 5 biggest risks involved with gold investments and to gold prices.
Economic receovery could lead to shift from gold to equities
In the last one year economic recovery around the globe has been very sharp. This has led to gold prices being driven down. In India gold prices are down almost 15 per cent since Oct 2013. Gold is a safe haven asset. What this means is that it rises during times of economic crises and falls when the global economy improves. Study the trend since the post Lehman Brothers crises and the fact is vindicated. If global economic recovery gathers further momentum, gold prices could drop.
Dollar and gold are inversely related
The dollar and gold are well known to be inversely related. When the dollar strengthens gold tends to fall and vice versa. With global recovery gathering pace, the dollar could against a basket of currencies pushing gold prices lower.
Gold demand in India is falling
Gold demand in India and China is another important factor. In India gold demand has been falling after the government imposed higher import duties. Lower demand from India and China can push gold prices significantly lower.
The US Federal Reserve is expected to complete wind-down its QE3 this month. This is likely to to reduce liquidity in the global financial system, and could weigh on gold prices.
Gold and price manipulation
Any manipulation seen in gold prices is likely to drag the metal lower. A run on Gold ETFs could also put pressure on gold prices.