Why is the Gold Collapsing?

The year 2011 was a spectacular year for Gold as it crossed $1,900 per ounce. However, it's on a downward rally towards $1,500, with current prices at ~$1,600.

Has something gone fundamentally wrong with Gold? Even the stressing situation in the financial markets has not stimulated gold buying. Rather, the weakening of euro has indirectly affected the gold prices. Let us look at some of the macro causes behind this fall.

1. The demand of gold in emerging markets and developing nations such as India has reduced, mainly because of the weakening Rupee)

2. The weakening Chinese economy, which is one of the largest player in Gold, with over 1054 tones of gold reserves, also means a weakening demand for Gold from China.

3. Gold has risen by 52% from September-2010 to September-2011. So, another explanation for the gold fall is profit-booking (price correction). Some investors might be setting off there equity losses with gold profits.

4. In 2010, Gold was moving in line with the US dollar. However, that tie has broken, and now even though the dollar is strengthening, the gold is falling. The explanation could be that the strengthening dollar is killing the demand for gold as an investment.

5. People had taken long position in gold with the expectation of higher inflation on the grounds of the third round of money printing (Quantitative Easing 3). These positions are also being closed now.

What do you think are the reasons for the gold collapse. Please share your thoughts.

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