look news india
At present, very big and shocking news is coming out from the Indian bullion market and commodity market regarding the loss of shine of gold. Gold, which was trading at its historical record high (about Rs 1.76 lakh to Rs 1.80 lakh per 10 grams) till some time ago, has now slipped to below Rs 1.40 lakh per 10 grams after a huge fall. This sudden and huge slowdown in precious metals has created panic among investors. Bullion market experts believe that this historic fall in gold prices in the last few weeks is not a normal fluctuation, but many major reasons related to the international economy and monetary policies are responsible for it.
US Federal Reserve’s strict policies and increasing pressure on interest rates
The main reasons for this sharp fall in gold prices are the stance of the US Central Bank (US Federal Reserve) and rising interest rates globally. Following the continued strong data of the US economy and the strong performance of the labor market, expectations have increased among investors that the Federal Reserve may increase interest rates further. When global interest rates are high and bond yields are strong, investors move money from non-yielding assets like gold to safer and higher yielding bonds, which reduces the demand for gold.
Strengthening dollar index and huge jump in treasury yields
The strength of the US Dollar Index in the international currency market has hit the gold prices the biggest hammer. Additionally, US 10-year and 30-year Treasury bond yields have hit historic highs. Whenever the dollar and bond yields strengthen, gold prices come under pressure against the dollar in the international market. Since gold is traded globally in dollars, the appreciation of the dollar makes it expensive for countries with other currencies to buy gold, leading to huge corrections in prices.
Crude oil price fluctuations and rising inflation concerns
The continuous instability in crude oil prices in the global market and the energy crisis caused by geopolitical tensions have again rekindled the concerns of global inflation. Due to increasing pressure on the inflation front, central banks around the world are forced to adopt the stance of monetary tightening. Although gold is traditionally considered a great shield against inflation, in the current circumstances, rising energy prices and the tight stance of central banks have weakened investor sentiment, increasing selling pressure.
Profit booking and technical correction at record highs
Market experts also say that gold had reached its overbought status after a long and continuous rise in the last few months. When prices go up too much, big fund houses, institutional investors and traders start doing ‘profit booking’ in huge amounts to protect their profits. Due to this selling pressure, there has been a sudden huge fall in prices. According to technical analysts, when gold prices slipped below important support levels, panic selling started in the market, due to which the prices fell sharply.
Slowdown in industrial demand and changing trends of global investors
Along with gold, slowdown in industrial demand for silver and other precious metals has also affected the market sentiment. The expected pace of demand for physical gold is not being seen in the major markets of the world, especially the Asian economies. Conversely, investors are attracted to the stock market and other high-return asset classes. Due to the combined effect of all these five major reasons, gold prices have fallen from high levels of Rs 1.70 lakh to below Rs 1.40 lakh per 10 grams, due to which investors are now having to rethink their investment strategies.