Why did gold plummet? The most important reason is that global inflationary pressures are easing, which reduces the attractiveness of gold's inflation-avoiding function. Those gold bulls who were betting that inflation would explode as central banks scrambled to print money had to admit defeat and exit their gold positions regardless of the cost, and proceed in the opposite direction.
The panic-induced plunge greatly stimulated gold investors. So what are the reasons for such a historic plunge in gold prices?
The culprit: Cyprus sell-off rumors
On April 11, Reuters reported that European Commission documents showed that the Cyprus government agreed to sell excess gold reserves to raise approximately 400 million euros. This will be the largest gold sale in the euro zone in four years, and panic selling occurred in the gold market after the news was announced. Although the amount of gold involved in Cyprus is not large (about 10 tons), gold traders are still worried that other countries in the euro zone will use this as a precedent and follow suit in the future. This is especially true for countries like Portugal and Italy, which are deeply in debt crisis but have far greater gold reserves than Cyprus.
The man behind the scenes: Goldman Sachs, Merrill Lynch and other financial institutions are betting against gold
On April 10, Goldman Sachs lowered its 2013 gold price forecast from US$1,610 to US$1,545 per ounce. The annual gold price forecast was lowered from US$1,490 to US$1,350 per ounce. In addition, recently, international investment banks such as UBS, Deutsche Bank, and Societe Generale have significantly lowered their expectations for gold and silver prices this year and next year. Goldman Sachs and many other internationally renowned investment banks collectively sang high-profile shorts on gold, causing panic selling among investors and accelerating the decline of gold and related precious metals.
Macro factors: China’s economic data is sluggish
On Monday, after China’s disappointing economic data was released, the 8% growth rate was lower than market expectations, suppressing investor sentiment. Some analysts believe that the U.S. economy continues to recover steadily, the U.S. dollar is strengthening, and the market's expectations for the U.S. Federal Reserve's quantitative easing have weakened, weakening the safe-haven properties of gold as a precious metal, and suppressing the price of gold, which has begun to slide into a bear market after 12 consecutive years of bull market.
Market factors: Gold investors have switched to stock trading
Since the beginning of this year, gold prices have continued to be weak, which has sharply reduced the interest of precious metal investors in gold investment, and many gold investors have switched to stock trading.
Conspiracy theory: The Federal Reserve may manipulate the price of gold
European and American analysts have used social media to complain about Bernanke and the Federal Reserve, believing that this is a big move by them. The former assistant secretary of the U.S. Treasury Department even bluntly said: "This conspiracy has been ongoing since April. The exchange told individual customers that hedge funds and institutional investors were releasing information about selling gold, and warned individual customers to also Early delisting. Then, a few days ago, Goldman Sachs announced that the gold market was going to sell off further. What they wanted to do was scare individual investors away from gold.”
Crisis of confidence: Whether gold is questioned as an effective hedging tool
Precious metals analyst Credit Suisse said: "It is clear that there is greater doubt in the gold market than a week ago - Doubts range from the independence of central banks to their control of gold reserves and the sanctity of EU treaties. Gold investors are once again realizing that investing in gold is not a very effective hedge."
Increased transaction costs: Margin. The increase will force long investors to close their positions
The New York Mercantile Exchange has raised the minimum margin for gold and silver futures. The increase in margin will increase transaction costs and may cause investors to be forced to close their positions due to insufficient funds. , which will amplify gold short selling volume.
Factors of forced position: Paulson may be forced to close his position after losing US$1 billion in two days
Hedge fund tycoon Paulson’s personal wealth has almost been lost in the past two days 1 billion US dollars. Judging from the trend of gold in the past two days, if Paulson clears his position, he may be jointly forced by short sellers. If he clears his position, it will inevitably intensify the decline in gold prices.
Japan’s Kuroda Effect
After Japan’s new governor Haruhiko Kuroda launched unexpected easing measures, the volatility of Japanese government bonds rose sharply, comparable to that of Greek government bonds. In order to meet the surge in margin requirements, Japanese financial institutions have chosen to sell other assets to strengthen capital and liquidity rather than selling bonds. Since QE2, gold price trends have been highly inversely correlated with the intrinsic volatility of Japanese government bonds.
The full text comes from: Changzhou Evening News' article "Revealing the 9 Reasons for Gold's Plunge"