Why gold price is destined to fall

To predict the gold price direction has never been an easy task. The yellow metal’s prices have shown an upward trend for as long as 12 years in a row. Now, it seems that this bullish run could be coming to its end. Here are few of the most significant drivers which will lead to the negative outcome:

Risk appetite for equity rises

Risky investing rose in 2012 driving the CBOE Volatility S&P500 Index down by 37%. Safe haven investments such as gold, US Treasuries, etc. have shrunk in value. At the same time assets with higher like small cap stocks and emerging market stocks have gained.

Decline in physical demand

In the third quarter of 2012 demand for gold was up by 10% from the previous quarter. Yet, on year over year basis, the demand has declined. In numbers that is $57.6 billion worth of demand. This is 14% lower than the value from the value of the third quarter of 2011. A sharp edge down in the bar and coin segment caused drop in investment demand. The demand of investors fell by 16% on year over year basis.

Too bullish gold sentiment

According to traders, investors, and analysts outlooks the higher gold prices are sitting about 75. That way it sits in elevated area. Through 2012, we have seen better elevated trades when the bullish metal prices were fewer than 50.

Quantitative easing end

From December 2008 to June 2011 gold prices have rallied at about 70%. Trough the period we’ve seen the first two rounds of quantitative easing of Fed. Now what will happen to prices? All things have beginning and end. The same could be said for the Quantitative easing. Most people think that its end is very near. During the last Fed meeting many officials declared intentions to cease asset buying. These intentions are due to Federal Reserve’s financial instability and swollen balance sheet. There could be downward activity of the metal if the quantitative easing ends.

Sluggish gold buying by central banks

The gold purchase of central banks went on in the third quarter of 2012. Yet the trades were clearly slower. The demand of 97.6 tones accounted for 9% of total gold demand during 2012. Central banks had $5.2 billion worth of demand. The most powerful driver for gold investments from central banks is the diversification of reserve assets.

Growing speculation

The US Commodity Futures Trading Commission pointed out a catching fact. The data shows that gold call option buying surpasses rough puts about two times. People often turn wrong when they are mostly in aiding only a certain trade.

Losing momentum

With a 7% rise the yellow metal put 2012 as the 12th bullish year in a row. This is an amazing performance unseen since 1920. Though, since September 2011 gold actually went into correction mode. In reality you can’t expect that gold prices would perform infinite annual gains.

India raises gold taxes

According to Finance Minister Palaniappan Chidambaram the country could raise gold imports taxes to reduce the current account deficits. You can ask how this will affect global gold. India is the bigger yellow metal bullion buyer in the world. Though, less than 1% of the global gold production is set in the country. In respect 4% to 6% import tax increase could be applied. Imagine the consequences.

In addition the statistic shows that gold underperforms against other major asset classes like real estate, US stock and even Euro stock. So ask yourself what this could mean.

Resources for gold investors:

• Top Rated Books for Silver Traders Review
• Top Rated Books for Gold Traders Review
• Social Media for Stock Market Traders