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Reasons that Explain the Drop in Gold Prices


In recent weeks, there has been a significant drop in gold prices. There are a few underlying reasons for this reduced pricing. Investors keep a good eye on the price of gold, and it continues to be a hot commodity. In early September of 2011, gold was at an all-time high but now it seems to be going the other direction. 

Gold is now lower than it has been since 2009 and many people are worried about this. Looking at factors that affect it though can help to put the mind at ease. The power of the United States dollar is continually getting stronger. It has climbed 5% against the Euro and other currencies in the last year. Gold is priced in USD (United Stated dollars) so that means foreign investors are finding it harder to invest in gold right now.

There seems to be a surge in people putting their money in the stock market in the past 6 months. It is believed a large portion of these investors are turning portions of their money for investing from gold into other types of investments. Perhaps they would like to expand and diversify their portfolio. For others, they have been watching changes and trends in the stock market and feel that what they invest in it now is going to pay off for them with big dividends in the near future. 

Momentum is considered to be one of the reasons that gold prices have dropped recently. With any asset that is doing well over time, there are going to be drops in the pricing. There is also going to be a change in the number of people that are buying at any given point in time. Studies show that with any such investment, momentum will indeed account for dips and spikes along the long term calculations.

Panic is also a factor for the drop in gold prices. There are investors that worry about a huge crash coming along. As the drop in gold prices occurs, they are in a hurry to sell it and to avoid a huge deficit with that investment. Other people are more hesitant to buy the gold that is being sold in case it doesn’t go back up in value. 

As any investor knows, the price of gold will go up and go down depending on the economy and other factors. They keep a good eye on when to buy it and when to sell it based on the going price for it. In spite of the variations, it is still considered to be the best long term investment. With that in mind, these drops in gold prices shouldn’t be the only factor to look at when deciding to buy or sell gold at this point in time.