7 reasons why gold prices are falling

Gold suffered a big jolt on Monday and plunged sharply to touch a two-year low as panic-stricken investors and speculators went on a selling spree sparked by global liquidation Standard gold (99.5 purity) sank by a whopping Rs 520 to finish at Rs 25,250 per 10 grams - a level not seen since June 28, 2013 as compared to last Friday's closing level of Rs 25,770.

Pure gold (99.9 purity) also tumbled by Rs 520 to end at Rs 25,400 per 10 grams from Rs 25,920 previously.

This is the biggest fall so far this year for the yellow metal. 

Here are 7 reasons why gold prices are falling across the world: 

1. Curb on gold import 

Tough measures taken by both the government and the RBI to curb gold import amid slowing investment demand against the backdrop of a strong rally in equities, which is emerging as a preferred investment asset class, are taking some sheen out of the yellow metal. 

2. Higher domestic gold inventories 

India was the top consumer of the metal in 2014 and the second biggest after China in the first quarter of this year. 

Higher domestic gold inventories is also having an impact on price movements of the yellow metal, a bullion trader said. 

3. Concerns over monsoon 

Demand for gold in India is also sluggish as concerns over a weak monsoon still remain. 

Farmers are key to the country's bullion demand. 

Nearly two-thirds of India's gold demand comes from rural areas where jewellery is a traditional store of wealth for millions who have no access to the formal banking system. 

4. Massive selling in China 

China on Monday dumped a huge amount of gold on the market, causing the price of the precious metal to fall drastically. 

Reports that China gold reserves were half the expected level added additional selling pressure on gold. 

According to reports, some 33 tonnes were sold in the Shanghai spot market on Monday as investors sought to shift focus to other avenues. 

5. Stronger US dollar 

A stronger greenback makes dollar-denominated commodities more expensive for buyers using weaker currencies. That tends to dent demand and, in turn, pull prices lower. 

In wider markets, the dollar hit a three-month high against a basket of currencies, making dollar-priced gold more expensive for holders of other currencies. 

"The current downswing in Indian gold prices is directly related to the strengthening of the US dollar in recent times. We are hoping that the present trend may be arrested soon and the prices could stabilize within a month or so," said Mumbai Jewellers' Federation president Rakesh Shetty. 

6. Worry over US Fed rate hikes 

Gold has breached key support levels as the dollar gained after Federal Reserve Chair Janet Yellen told Congress last week that the Fed is on course to raise interest rates if the US economy expands as expected. 

A rise in US interest rates will attract investors to the dollar for higher returns, driving up its value. 

7. Uncertainty in international commodity markets 

Heightened uncertainty in international commodity markets amid geopolitical developments in the aftermath of Greek debt deal and the historic nuclear agreement between Iran along with the world powers too weighed on bullion trade. 

(With inputs from agencies) 

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