Why is Gold rate so vagrant now?

April 24, 2013 18:58
Why is Gold rate so vagrant now?

Gold, a precious metal, that is religious to most of the Indian subcontinent, has been all over the place in the rate charts. It all started last November in 2012. Prices have started falling gradually though there have been a few insignificant rises in the prices since then. But today in April, the prices have crashed down from the skies all of a sudden. With the sharp drop, consumers are looking to fill in their gold bank resulting in a gold rush in the nation but is this the right time to purchase gold? Will gold grow or decline further?

When you take notice that the prices have dropped sharply, also note that there have been some factors behind the market that have put them low. Such a sharp decline should cause some worry too since this is the fastest rate of drop by 13 % of the price in just two sessions. Such a phenomenon has returned only after 33 years.

The scenario is the same with other commodities like silver, crude oil etc but it is not so obvious since the price drop is not that high. But coming to the point of the article, the question, “Why is this happening?” The answer is very simple, the factors that caused the prices to rise sharply back then are no longer controlling the prices and hence a sudden drop.

Six years back, gold was 8,600 per 10 grams. After the financial crisis in October 2008 gold which earlier was only used majorly as an ornament became an investment. After all trade options were exhausted and proving to be costly, gold was a safer investment. The rates have moved to be as high as 300 or 350 percent in the next five years. Stock market recovered in the last few years but is still trailing behind the pre-crisis levels.

Several companies have fallen into mini-recessions with the rate of economic growth stunted majorly almost all developed natins. At that point, gold helped the nations circumvent the economic crisis but not anymore.  

This will hence reflect in the falling prices of gold as all the trade markets will realize that gold will no longer support their economy. The ornamental status of the gold will soon be restored bring down the prices further. After dollar gaining against euro and yen, the trade status for the dollar has been restored.

The main reason for the sharp fall on April 13 was because Cyprus sold $523 million worth of gold to raise money for the nation. European Central Bank and tother nations in Europe have also been encouraged to do the same. In anticipation that the gold market will be overflowing, prices of gold dropped.

A further sharp price decrease is not likely in the near future and the same can be said about the other extreme, increase in prices. If you are looking to buy gold as an ornament, go for it, but gold is not yet on good terms to be your investment option.

(AW- Anil)

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