Why Gold prices drop lately?

Many people must have wondered why gold prices suddenly fell significantly. What causes this to happen? Some of you probably already know why, but here are two factors causing the decline in gold prices that our analysis.

1. U.S. Federal Reserve

U.S. Central Bank, or better known as the Federal Reserve, issued a policy called "Operation Twist". This policy is to sell U.S. debt (bonds) with maturities short, and receipts funds to buy bonds with maturities of long (10 years or more).

Well, the important of Operation Twist is its effect to the market. As a result of the sale of debt securities with maturities of these short, then the interest rate of short-term debt is a rising and promising enough for the hedge funds / mutual funds that manage large funds.


2. Mutual Fund, Hedge Fund and panic in the Market

Mutual Fund and Hedge Fund (firms or individuals whose job it is to manage investment funds from investors in large numbers) simultaneously switched to chasing short-term debt that is described in America's first points. Debt of a country regarded as an investment for a profit the most secure in the midst of the crisis that hit the euro and the declining performance of China. State which issued debentures can print money to pay the debt / interest of debentures previously issued. In this case, America is known as the country's most secure currency (safe haven). U.S. Dollar is the currency that can be used almost worldwide.

As a result of poaching debt, then the mutual funds and hedge funds are abuzz move his funds to buy such debt. They use these funds is to sell an investment instrument that previously they hold. Gold and stocks that they hold before finally sold and the funds used to buy American debt. Simultaneously they also can be said to profit-taking.

When the above happens, then the gold market will drop significantly, and the results are cause and effect chain panic among hedge funds and other investors. The result is an act of "sell-off" (a massive selloff).

Trader's View

Previously we had reported that the market index fell around the world, and this time gold and oil commodities also fell. Broadly speaking, in the short term there is no "hiding place" the safest of debt securities other than American.

For traders, a market rise or fall may not be a hindrance to achieve a profit. But always be guided by the law of risk and reward is a wise way of trading.