What’s happening in the gold markets?
The price of gold slumped almost USD40/oz at one point, nearing USD1,200/oz on 1st of June. There are several reasons:
Data showing a cooling in manufacturing growth in and outside in of the US triggered a widespread sell off in assets, including equities and commodities, according to Reuters. Bullion was caught up in these sales and dragged lower as a consequence.
Only 78 Euro zone banks requested short term funding totalling a little over EUR111bn to help them ease the return of EUR442bn in one-year loans to the European Central Bank the previous day. This points out that the stress among the Euro zone banks isn’t as severe as expected which may reduce the need of owning gold.
India’s June 2010 imports could be 75% lower than the near 30t imported in June 2009, due to high prices. The lack of need for physical gold from India may restrain further gold rallies.
Gold is sensitive to geopolitical tensions as well as financial and economic stress. According to the White House, President Obama will sign more sanction on Iran in response to their nuclear program. The increasing tension in Middle-East has a supporting effect in gold prices.
Gold may be vulnerable to further price pressures in the future but rising sovereign risk still remains very strong in the markets. This will probably soon stop the falling gold prices since the markets are very aware of the possible double dip recession.