Slump in Gold Price



Abstract

The research study throws light on the reasons of falling gold prices in the international market. The study brings in light various determinants of the gold prices. With this, the interview was conducted to find out the answers of different market behaviors in the past years. Inflation and the price of dollar are studied in detail to understand their correlations. Moreover, the major consumers in gold and their impact on the gold prices with the buying and selling powers are also encompassed in the study. The role of US and European market in the fluctuation of gold prices is also a key factor in understanding the recent drop in the gold prices.

Slump in Gold Price

Introduction

The year 2007 witnessed economic and financial instability worldwide, introducing the highest degree of collapse with sudden drop downs in many of the financial aspects, such as equities. In this period of recession, gold has been the only commodity which has shown some stable growth in terms of its price. However, April 2013 took the investors of gold by surprise as the gold prices went through the sharp fall which gave rise to the several of questions, such as if this is going to prevail for a very short period of time or it identifies that twelve years of bullish trend in gold market has come to an end.

There are a number of factors involved in the drop of gold prices, and they will be covered in the following research paper. The purpose of this study is to present an argument on the determinants contributing to the fluctuation in gold prices. With this, the interview approach (See Appendix 1) has also been used with some of the market analysts to find the answers to the critical issues prevailing in the gold market (Behrmann, 2006).

Argument: Key Determinants in the Gold Prices

Gold as a Property

It has been centuries since the gold has been owned as a property and the currency because of its various peculiarities. There was a time when an individual's wealth used to be measured in terms of amount of gold he had. One of the reasons of its popularity is that it does not perish or devalue like the other commodities of the market, and hence is best for long term store (McGee, 1996). The gold will remain gold even after hundred years of its mining.

Other significant fact attributed to the unusual behavior of gold in the market is its limited use in the industrial sector as compared to the other material which includes metals, like platinum, silver, and bronze. It is believed that ten percent of the total gold is required for the industrial use. Consequently, the prices of gold do not have any direct link with the global industrial economy as the other commodities have. Hence, it shows negligible or negative correlation with other financial assets.

Gold vs. General Price

Gold has been very stable over the last recent years despite its institutional settings and relocation form use ...