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Gold Prices Going Down? Facts and Rumours

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As I am writing this, the price of Gold per 10 grams is Rs 23,086 for 22 carat and Rs 25,970 for 24 carat in Delhi. Not very long ago, the price of gold was hovering around Rs 30,000 range. But all of a sudden, in the last few days, the price of gold is witnessing a free downfall.

Financial analysts claim that gold has never seen such fluctuations in the last 30 years. In fact, the price was always increasing year on year. A recent report by CBS News claims that such huge global drop in gold prices has been seen after 1983.

1 Year Gold Rate Chart

So, what are the reasons which make gold rates so fluctuating?

I have done some research, and came up with these rumours and some facts which may have direct or indirect impact on this rollercoaster ride of gold, all around the world:

Indian Tax Rates:

Today, India imports more than 800 tonnes of gold, worth $56 billion from open markets around the world. In January, 2013, Indian government had announced a 50% increase in import tax rate for gold and made it 6%.

Some analysts claim that this has created a ripple effect across the Asia-pacific as after China, India is the biggest consumer of gold in Asia. Has this led to decrease in gold prices?

Cyprus Gold:

Cyprus is in heavy debt and at the same time, it is full of unaccounted black money from the world’s billionaires (mainly Russia). And rumour mills are abuzz that Central Bank of Cyprus may sell some of its gold in order to pay off their debt.

The stories of gold selling, which are appearing in major publications, is triggering alarm bells as the market would be flooded with gold. Maybe this is one reason for fluctuations in gold rates across the globe?

Stronger Dollar:

US economy is reviving and the country’s unemployment rate is dropping. This has lead to more investment in stocks and mutual funds within USA and Europe. The reason prices of gold is decreasing is that, US citizens are known to use gold more or less for investment purposes.

Now, when the stock market is improving, they have started selling their gold and this has led to fall in prices.

China Factor:

After Russia, China is world’s biggest consumer of gold. But unfortunately, China is experiencing an economic depression these days. As per Reuters, China witnessed its slowest growth rate this year, since 1999.

The Chinese government is more focused on infrastructure development and manufacturing, compared to gold buying. This is also cited as a major reason for fall in gold rates.

What’s your take? Why do you think Gold rates are suddenly going down all around the world? If you are into trading and/or finance, then I would love to hear your views.

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About Mohul Ghosh

Mohul is a Senior Online Marketer from Noida, India. You can follow him on Twitter to know his views on Online Marketing, Entrepreneurship & Life!

9 comments

  1. About 3 years back (when 1 gm was about INR 1700), I had written an article on Gold on my blog as well as here, http://trak.in/tags/business/2010/09/23/usd-vs-gold-vs-rupee/ At that point of time, had predicted a bull run for Gold at that point of time and, gold did increase to INR 3000 per gm recently, however now it witnessing a fall in last few month. To me, every asset has an intrinsic value at that point of time and however at times manipulation do happen. Further, share & real estate is driven largely by local economy and other local parameters, however in case of gold the pricing is mainly based on international rate. Now, as per experts, one of the reason for drop in gold rate is due to favorable or better economic condition prevailing in world economy. However, I still believe its still early days to make such a statement, as most of the economy seems to be still struggling. Further, as stated any asset has an intrinsic value and rise or fall can be predicted to an extent only. One also need to keep in mind around 2007 per grm gold was about INR 900 and in about 5 years it had gone up almost 4 times, hence based on this one has to make his own judgement as whether it would rise further or fall based on value of gold and considering prevailing economic conditions.

  2. Hi Mohul, Nice topic. 1) Indian tax on gold : This tax rate of 6% does not have any significant effect. To have a ripple effect on international demand supply intrinsics, first it should have effect on Indian gold demand. Indian demand declined marginally in this period of tax increase but due to other reasons. So the lesser Indian consumption does not have any effect. 2) Cyprus effect : This is true to most extent. Till date most of the Russian black money was channelled through Cyprus which was offering high interest rates to deposits. Now that the economy has collapsed, Cyproit banks will be forced to sell some gold to repay debt. This sell off though did not happen, will eventually happen. But the news itself had the effect to cause crash in gold price. 3) Stronger Dollar : Dollar never become stronger overnight to have caused gold crash. So it is not a factor in recent gold crash. 4) China demand : It does not matter how much “more” they are spending on infrastructure. The mere fact that they want to hold some of their reserves in gold is enough to send gold through the roof. So this point is not only not true but the opposite is true. Finally its not Russia which is No 1 as mentioned in the above article. Its India. May be typo error :) Basically the foreign billionaires are reshuffling their portfolios and it so happened that most of them have reduced gold (either in the form of physical gold or gold funds) at the same time and Cyprus factor caused a minor fear factor to cause gold crash. Just my two paisa.

  3. I found this article worth reading. This is an open discussion article which encourages the views from other knowledgeable people in the industry. It will be interesting to see if someone from the Gold/Banking industry join the discussion and share some valid points.

  4. Dear Mohul and Trak.in, People come to your blog to gain knowledge and get answers to the questions. And not to face the same questions which they themselves have. Any decent FT and ET reader will know all the points you mentioned, there is no research involved in writing this article. I would have been more happy to read some real analysis and to find some answers rather than lines like ‘Has this led to decrease in gold prices?’ I’m a fan of Arun and sad to see such pointless articles on this blog. a fan of trak.in, Saurabh

    • Arun Prabhudesai

      @saurabh – Thanks for your comment and can understand your disappointment. However, please note that Mohul is not claiming anywhere that he is an expert. He also needs answers to certain things that are not known. The point of this article is not give answers, but to encourage discussions from other knowledgeable readers that trak.in has. We as authors / bloggers cannot be expert at everything even I write many posts which are open in nature. Having said that we will ensure that whenever possible we will try and bring our point of views. Hope will not disappoint you with our future articles..

      • Well said Arun. Readers should use common sense when reading such articles. I am sure that you are not a gold expert but at the same time you bought out a good point to have discussion here about gold prices dropping.

      • I used to be a huge fan of your blog, but thn u changed the interface, which makes the same news repeat and flash it again nd again, secondly you dont come up wid different new articles or nething. Now, coming to this article, it is not upto the mark, i know you are not a gold expert but atleast the secondary research on this topic you have done is next to nothing. You are talking about Cyprus selling part of it’s gold and that will lead to flooding of the market with gold……i might be wrong but cyprus only holds less .50% of gold….

  5. Mohul, Good research. So can you suggest readers that is it worth to invest in gold right now?

  6. Some folks also claim the disturbance in Korean Peninsula as one of the reason for the price fall. Moreover, the reasons mentioned above has also more or less effected the sudden drop.

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