Why Is The Price of Gold Falling?

by James on August 21, 2012 · 4 comments

Why is the price of gold falling?

In a word: China.

The latest analysis from The Atlantic (1) suggests that the price of gold is had been declining due to a couple of factors in the Chinese economy.  First, the Chinese economy is rapidly maturing, which means that families have alternatives to gold as an investment option.  Second, the global economic slowdown is pressuring budgets in China which means the hordes of Chinese jewelry buyers aren’t buying as much as they used to.

So what does this mean for you?

Assuming that falling gold prices are due to China, then to the degree that Chinese demand continues to decrease, then the price of gold should continue to fall.  If I had to bet, it would seem that China’s economy and its financial markets are likely to continue to mature in the next coming years, suggesting that demand in the middle kingdom will remain soft.

So, what are the implications for your pocketbook?  Well, provided you agree with the idea that gold is going to decline, then you have several options.  You might consider selling your gold or delaying any purchases.  So if you’re looking to pick up some jewelry or buy a bit of bullion, it might pay to wait a few months.

Best,

James



{ 4 comments… read them below or add one }

1 DC @ Young Adult Money August 21, 2012 at 7:13 am

What do you think of the “gold bugs” that say gold could go as high as $5,000/ounce?

2 James August 21, 2012 at 9:14 am

DC,

The main point of the Atlantic piece is that demand is falling from China. The possibility of future price increases will probably depend a lot on the health of the economy where major retail buyers of the metal are at: China, India and the U.S. Central banks are buying some gold, but not in volumes large enough to drive demand.

If I were a momentum trader, I’d say that the six month price trend is in a decline.

So, from a technical and fundamental standpoint, things look a bit gloomy for gold.

That said, predicting the future is notoriously difficult. So, I’d caution folks to diversify and focus on the financial basics; budgeting, reducing expenses, making prudent investments, etc.

James

3 John @ Calling the Puts August 21, 2012 at 9:23 am

Personally, I still believe that commodity boom is coming. Not sure if I will go with gold, but I might go with silver, though.

4 James August 21, 2012 at 3:33 pm

John – thanks for the note. I’d be curious to see what your thinking is on the commodity boom. Why do you feel this the case?

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