The gold price has dipped below £700 an ounce for the first time in five and a half years, shedding 4.5% since trading opened on Sunday evening. Supplies for physical gold bars and coins from major mints and refiners are beginning to dry up. As demand and interest in physical gold spikes, many mints and refineries are ramping up production. Lead times on physical gold has been pushed back a couple of days as they adjust to meet the unusually high demand. Just 3 months ago the price of gold was over £800 an ounce, since then it has fallen almost 13%.
What are analysts saying is causing the falling gold price?
- Strengthening US dollar - The dollar has gained value on the back of positive US economic data, which tends to send commodity prices lower. There is also a strong expectation for the US and the UK to start raising interest rates soon. However, there is now far more debt than before the 2008 crisis. How will the global markets cope when rates actually begin to rise?
- Speculators - There is lots of credible analysis that the latest drop was a deliberate raid by bears on the gold price. This is because the largest sell-offs were made at a time when global liquidity was low, giving the biggest impact on the price. So far the bears are clearly winning but when the gold price turns they will have to close their positions, making the potential upswing just as dramatic.
- 'Reduced' geo-political tensions - Greece has just about stayed in the Euro, the Ukraine crisis hasn't yet escalated dangerously and ISIS are still mostly confined to parts of Iraq and Syria.
- China - Lower than forecast increase in official gold reserves of only 60% since 2009. Either China is deliberately underplaying its reserves for political reasons or private demand in China has been even stronger. China is the world's number one producer and exports none of its mined gold.