Why Gold Price Drop? Possible Reasons
Many investors ask themselves: “why gold price drop?” The answers to this question can be multiple: it can be because of speculation by big investment companies, it can be related to other market movements or because investors have lost interest in it.
Gold has always been considered the “safe” asset to invest in during unstable moments in the market.
Historically, during periods of war, during the cold war, the big economic crisis in 2009 and the Covid-19 pandemic, investing in the stock and shares market has always been dangerous.
If on one side the big movement can lead to high profits, on the other hand the risk to lose is also very high.
For this reason, many investors have stored their money on Gold, which is usually not affected much from external factors.
So why we assist at a gold price drop?
Gold Price Drop because of Speculations
In the history of investments there have always been the so called “bubbles”.
A bubble is when the price of an asset grows a lot in a short period, and then eventually drops going back to where it was at the beginning.
All of this usually happens within few days.
This bubble is caused by 2 factors:
- A major investment company has bought a big amount of Gold equities (worth Trillions of Dollars), managing to manipulate the price.
- A large group of investors has bought all at the same time Gold, selling it when they have made a good profit.
Both situations are considered speculations because they can increase the price of gold and then make it drop when they sell, all in the short term.
Speculation is totally legal. Only huge amount of money can lead to this event.
This means that if you see that the price of Gold drops after it has dramatically grown, all happening within few days, you are in front of a speculation event.
Gold Price drop because of other markets
In the investment’s world, many investors are convinced that the price of Gold is linked to the Yen.
In fact, when there isn’t any big event like a crisis, the Gold moves similarly to the Japanese Yen (JPY).
If JPY grows, the price of Gold does the same. If the value of Yen goes down, the gold price drops too.
As usual in finance, this theory is only a theory and it can’t be used as rule for your investments.
What is very important to mention is that in Forex trading, every currency is always paired with an other one.
Because the Gold price is in dollars, it is very important to monitor the currency pair USDJPY.
USD means dollars and JPY is the Yen.
This means that if the price of gold drops when there isn’t anything major happening in the world, is always worth checking how the pair USDJPY is moving.
This type of analysis makes sense in the short term, for drops in price of few dollars. Generally this doesn’t bring major market movements.
Gold Price Drop for a loss of Interest
In the era of social medias, the focus and attention on certain topics can lead to certain actions. This fact happens also in investment world.
By looking at what happened with Gamestop, it is easy to understand how the interest of people can be easily manipulated.
The Covid-19 pandemic is another great example of this fact. After the first rumors of a vaccine development, many traders bought stocks of some major pharmaceutic companies.
Then, after the first interest, the attention has been brought on other markets and because of that the price of some of those pharmaceutic companies has dropped. This is because some investors have sold their pharma stocks and placed that money in something new.
This fact has already happened also for Gold and it can happen in the future too.
A good thing to do to avoid a drastic loss of money for the Gold price drop is to monitor all the news being around the web.
If there are some consistent rumors about gold, it could be dangerous to invest in that market, or very profitable on the other hand.
Price Gold Today
Today, the price of gold is at his highest value. This is because we are still dealing with the Covid 19 pandemic and the markets are still very unstable.
As mentioned above, investors usually place their money on gold when other assets are not safe enough to invest in.
It can be that the price will drop once the pandemic is over, but it can also happen that it will stay where it is now.
What is always good to remember and mention is to stay informed on all the news and see what could be the next move worth to do.
If you want to test a demo account you can read about it on this page.
Author of this article and founder of Tradingonlineguide.com
My aim is to help you increase your trading knowledge with helpful content. I come from an economic background and have a strong passion for forex trading. With more than 6 years in the online trading world, I want to share my financial knowledge so that anyone can develop their investment skills.
In my spare time I enjoy cooking and travelling.
Here you can learn more about our review methodology.