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Why gold prices are seeing their biggest annual fall in 32 years?

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Why gold prices are seeing their biggest annual fall in 32 years?
International prices of gold are headed for their biggest loss in 32 years, according to news reports. In fact, if gold does not recover by at least 25 per cent until Dec 31, it would be heading for its first decline in 13 years.
 

Why gold prices are soft this year?

International gold prices have decline almost 25 per cent this year and is trading at around $1203, as against a record high of $1,920 an ounce in 2011.

This year a few things have not worked for gold. The year has passed off without any major economic tensions and no country has gone bankrupt. In fact, there have been no serious geo-political tensions like wars etc. Gold, is a safe haven asset and rallies when there are reports of countries going bust, economic chaos and wars or threat of wars.

The economic chaos that engulfed the world post the Lehman Brothers crisis, ensured that gold rallied and rallied at a frenzied pace, between 2008 and 2013 when there were a number of economic worries from Greece to the European peripherial region to Iran.

But now the world economy is back on track. Greece has not gone bankrupt and is still part of the Euro, Iran has decided to sit across the table and negotiate and one seldom hears of tensions in the Middle East. To compound the misery for gold is the sharp economic recovery around the world. This has ensured that investors dump gold and buy equities. Who would want to buy a safe haven asset, when there is no chaos around the globe.

The US unemployment data and other economic indicators show a robust recovery, which has prompted the US Federal Reserve to partially withdraw its QE3 easing. When QE3 is partially withdrawn there is less liquidity, which is not always good news for gold.

 

India which is the largest consumer of gold has seen gold consumption slump as the government has unveiled a series of measures to discourage gold consumption. Clearly, a host of reasons are responsible for gold's downfall.

Going into 2014, gold is not the best bet, but, things can change fast and really fast. After all, you never know when chaos reigns. It is always prudent to at least partially stay invested in gold.

GoodReturns.in

Read more about: gold qe3
Story first published: Saturday, December 21, 2013, 9:03 [IST]
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