A lot of people especially traders have been caught on the wrong foot because of gold princes plummeting in a matter of few days. There is wide speculation as to the reasons behind this. The main 6 reasons why it has tumbled is as follows:-
1.The main reason for gold losing strength is the rise of the dollar. An unexpected contraction in US retail sales, which hurt stocks and supported the dollar on Friday, added to pressures building in the course of the week.
2. The green-buck has also moved up on the hopes that the US economy is emerging from its crises, which could nudge the Federal Reserve to withdraw the stimulus package earlier than expected. Analyst say that the Fed has given the signal that there's a possibility to reduce QE and that took a lot of trust out of gold.
3. Consistent fall in gold prices led to speculative selling by participants as they are anticipating further fall in prices after the precious metal dipped to two-year low on expectations that demand for the asset will contract as the global economy improves.
4. Reports doing rounds that Cyprus is planning to sell some of its gold holdings. A European Commission assessment showed it was set to sell gold reserves to raise around 400 million euros (USD 525 million). While Cyprus' gold sale in itself is small, heavily indebted euro zone nations such as Italy and Portugal could also find themselves under increasing pressure to put their bullion reserves to work.
5. The return of confidence in the US economy has also seen investors shifting money from safe havens like gold to riskier assets like stocks. The US stock markets are currently trading at all-time high levels. Investors have recently been dumping gold, which has dropped for the past three straight weeks, and flocking to equity markets for better returns.
6.Sentiment has suffered due to recent cuts to price forecasts for the precious metal and outflows from gold exchange-traded products. Goldman Sachs lowered its average gold-price forecast for 2013 to USD 1,545 an ounce. Holdings of the SPDR Gold Shares, the largest gold ETF in the world, have fallen 10 percent from their peak levels.
