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Why gold prices could fall further?

Why gold prices could fall further?
Spot gold hit a 3-year low and was down 7 per cent this week in the international market as the Fed hinted at withdrawal of stimulus measures in the US. The week also saw the sharpest fall in gold prices since Sept 2011. Check today's gold rates here


Indian gold tracks international prices and hence it's important to understand where international prices are headed.

The gradual withdrawal of stimulus in the US or the asset buying programme, means there would be a squeeze of liquidity in the global financial system. For the last couple of years this fierce liquidity unleashed in Europe, US and Japan has been driving stock markets and gold higher.

Now, if liquidity is reduced the consequences are likely to be dramatic. Gold, like stock markets are likely to fall.

India, one of the largest consumers of gold has been discouraging gold imports to support the current account deficit. Imports duties have been raised and the Finance Minister has made his displeasure felt with gold consumption on several occasions. It's believed that physical gold demand in India is likely to fall, which should drag prices lower, since India is the largest consumer of gold.

Gold ETFs are beginning to see a sharp fall in their prices, sparking fresh worries for gold. According to news reports gold exchange-traded funds sank to multiyear lows, caught in a swift downdraft after the Federal Reserve's upbeat stance on the economy sapped appeal for the precious metal's haven status.

Apart from this most of the top investment houses have revised their gold prices outlook lower for the current year. Clearly, gold is headed for its first drop in 12 years and even at these levels it would need some courage to buy the metal.

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