Reasons behind the steepest fall in gold and silver prices:
CME Group raises margins: Chicago’s CME Group raised the margin requirements on gold and silver trading after prices of the metals dropped in last two days.
With this, the minimum cash deposit for trading in gold futures rose 21% to $11,475 per ounce contract and for silver; the minimum cash deposit was raised from $21,600 to $24,975, which made bullion traders to take money off the table from the precious metals as trading turned expensive.
Rising Dollar: Gold and Dollar mostly moves in opposite direction. So, if one is heading north, another tends to be in south. Gold is priced in U.S. dollars. Thus, if the U.S. dollar goes up, it becomes expensive for the rest of the nations to buy gold, so the price of the gold instantly goes down; conversely, if the U.S. dollar goes down, the price of gold goes up.
Renewed strength in US dollar recently one of the main reasons behind the fall in gold prices as gold has become pretty expensive to non-US buyers.
Hedge Fund Sell-off: Recently, The NewYork Times reported that some of the world’s biggest hedge funds are the main culprits of this sell-off. Hedge Fund managers who have been piling into gold from past two years thinking that it’s the best bet against inflation or other riskier assets like equities during uncertain times sold gold to raise cash to meet capital demands for their borrowings from Wall Street banks due to the sharp decline in the value of their underlying collateral.
They also sold the metal to meet the redemption requests from investors who fear that 2008 crisis may repeat again seeing the recent market volatility.
They’ve been reducing their exposure in the gold in futures market after its peak in early August.
Panic-selling: Speculators also turned panicky and offloaded their position in futures market as fear heightened that the global economy could sink back into a recession.
Lack of physical demand from India: India, which is the largest buyer of gold and silver, also abstained from buying precious metal due to on-going ‘shradh’. Many Indians are very particular about the dates when they buy precious metal. According to Hindu mythology ‘Shradh’ is considered to be an unauspicious event (when one’s ancestors are remembered), during which nobody buys gold. Lack of physical demand is also one of the main reasons; the price of gold went down.
Silver generally follow its cousin, gold. So, if gold is moving down, it dampens the trading sentiment for silver as well.