Gold Prices Suffer Biggest Decline In Three Decades

Gold Prices Suffer Biggest Decline In Three Decades

The nine percent decline in gold prices last Monday was the biggest one-day drop in over three decades as it went down by $140.30. The price of gold has been declining ever since August 2011, when it reached its peak of around $1,900. The current price of gold went down to $1,361 after this recent decline.

Prior to the decline in gold prices, the metal was purchased mainly as a safe-haven and protection against inflation. This allowed gold prices to steadily increase each year since 2001.

However, reports that the stimulus program may be ended by the Federal Reserve and the decreasing inflation triggered a sell-off among investors last week. Concerns on the possibility that the gold reserves of Cyprus may be used to pay off the debts of the country did not make the situation any better.

Gold became appealing to investors who were anxious about the possibility that the effort of the Fed to stimulate growth may cause inflation to increase too fast. However, as inflation was gradually reigned in, the appeal of the precious metal lost its luster, which may affect the price of gold.

The precious metal was also seen as a safe haven for investors who were concerned on a possible financial collapse. But the fear slowly disappeared following the bailout of economies by central bankers in various parts of the world. Gold was considered as insurance in case something goes wrong. However, this insurance did not appear to be needed for the moment.

Despite the recent drop in the stock market, stocks continue to go up this year. There is a general optimism that the economy is set to come of the slump after the financial crisis. Prior to the recent sell-off, gold prices went down by nearly seven percent.

It is also possible that interest rates may be increased by the Fed as the economy improves to prevent the price of goods to go up too much. When interest rates are low, gold is an appealing asset for investors since money in the bank will not earn that much interest.

However, when deposits start to earn interest, gold becomes rather unattractive resulting to a sell-off and cause gold prices to go down.

Posted by James Fried on Wednesday April 17 2013, 2:27 AM EST. Ref: CS Monitor. Link. All trademarks acknowledged. Filed under Featured News, Finance. Comments and Trackbacks closed. Follow responses: RSS 2.0