Why are Gold prices falling?

Why are Gold prices falling?

Gold prices are among the most dynamic commodity rates in the world. Gold prices in India are a result of multitude of factors at play. The recent steep fall in gold prices have been due some common factors and some factors that generally dont affect gold rates. Gold price in India has been falling steadily for the past two years and the recent sharp decline has brought down prices to a new low.

Gold prices in India are currently hovering around the level of Rs.24,000 for 10 grams of 99.9 purity of the yellow metal. This is around the level prices were at mid-2013

Primary reasons for the decline in gold prices in India can be attributed to:Monsoon concernsGold stocksChinese sell-offUS Fed rate hike and strengthening dollarInternational dynamics

Monsoon concernsThis years monsoon has been unpredictable at the outset. A weak monsoon means that the millions of farmers are left uncertain about their crops. For a country like India where a substantial portion of the population relies on agriculture directly or indirectly, weak monsoon signals lower income for the population.

Farmers are also one of the key drivers of gold sales in the country. Almost 70% of the national demand for gold comes from rural regions who view gold more than just a commodity its a means of long term savings for them to beat inflation needs and offset their weak links with the countrys banking system.

Gold stocksIndia has traditionally been among the top importers of the bullion in the world. As such, the country has been successful in stockpiling large quantities of the metal over the years.

Currently, the national stocks are at a comfortable level and so prices of the metal have remained stable or fallen due to this factor.

Chinese sell-offThe Chinese stock markets have experienced large fall in share prices during the past few weeks. As such, many stocks have discontinued trading to minimize losses. Lack of investor confidence on the stock market has driven them toward gold and large sell-offs have been seen to offset cash crunches. Recently, investors sold off 33 tones of the bullion in the Shanghai spot market, and reports have indicated that the Chinese stock of the bullion is lower than what was believed to exist.

US Fed rate hike and strengthening dollarA rate hike by the US Fed is an indication of better returns from investments made in the dollar. Seeing that gold rates are already on a downward trend, rate hikes by the fed will further reduce gold rates as investors turn to dollar to hedge their funds in.Similarly, a stronger USD means that the countries with weakening currencies such as the rupee have to shell out more to buy the same quantity to gold, as gold prices are decided on USD.

International dynamicsWith countries like Greece on the verge of bankruptcy, and Iran being included in the worldwide economy once more, gold bullion prices are bound to be affected owing to widespread consumer sentiments, for better or for worse.

Gold prices in India are touted to fall further in the coming months and as such you can expect further dynamism in trading rates of the yellow metal in the near future.

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