Fall Gold Prices:explanation

Date: July 25, 2015

Gold Doller India

Decline in global gold prices: Causes

Gold prices fell to their three-month lows in September.Gold is often viewed as an inflation hedge and safe haven investment by investors. Thus, gold prices are to a large extent influenced by a set of related factors including the macroeconomic outlook for the U.S. and world economies, the performance of alternative assets such as equities and the U.S. Dollar, the trajectory of interest rates and geopolitical uncertainty. In this context, we will look into the reasons for the recent decline in the prices of gold.

After years of gains, the price of gold is steadily dropping. Gold is mainly traded in the U.S dollar (or USD). Gold will go up and down depending on the strength of the USD and the U.S. economy.A strong dollar has made the world somewhat less pessimistic about fiat currencies, while reducing the allure of gold as a safe haven asset.The dollar index and gold prices generally move in opposite directions.The dollar index (base: March 1973 = 100) is currently close to 98, compared to the low of 72.93 on April 29, 2011 when the American economy was still sputtering.

prepare ias

What about India? Why are prices falling here?

With a strong rupee in combination with relatively low inflation making the yellow metal not a very good investment. (The huge outflows from gold exchange-traded funds would testify to this.)
Gold ultimately has very little utility other than being raw material for jewellery and a store of value (though perhaps not over the long run).
Nor does it generate any income — unlike rentals from land, dividends from shares or interest from bonds.