Gold drops on Speculation of Fed Tapering

The drop in the price of gold by 2% is the most severe tumble in 16 weeks. One in a series of gold drops in the past year, the current price of gold is expected to continue to be lower than preceding cycles. Speculation by the U.S. Federal Reserve and inflationary consumer prices will continue to influence precious metals performance in 2014.

When gold drops, it is generally an indicator that government policies are prompting a market economy. The U.S. Fed tapering strategy is a retraction from a recent monetary stimulus policy that flooded the economy with cheap money. The recent gold drops are in response to forecast of U.S. economic recovery.

Economists suggest that the economy is on the right path and inflation is rising only slightly. The U.S. Fed tapering policy is promoting a return to the market. In 2013, market analysts forecast a drop in precious metals prices in response to the Federal Reserve’s announcement that the tapering strategy was inevitable. Since the restriction of bond debt purchasing by the Feds, U.S. investors have been trading in their save haven and other fixed assets for securities.

Trading of gold securities on the primary and secondary markets has remained level since the Q4FY13. Global sales in gold have benefited from the escalation of tensions between Russian and the Ukraine. The situation has led to a loss in investor confidence in the region. Under the current conditions, it is expected that the demand for safe haven gold assets will continue to be restricted to the region.

For investors abroad, safe haven premiums are diminishing. Variable demand for safe haven assets will be seen globally. Emerging market demand for safe haven assets is predicted to continue, but with more of a focus on silver which can be used in manufacturing. U.S. investors are limiting precious metals investment to futures and options where returns will be higher.

According to the World Gold Council in London, gold will continue to decrease in price during the forthcoming cycle. The gold standard is reflected in the drop in Silver trading as well. Palladium futures for June delivery declined 1.9% to $795.90 an ounce on the New York Mercantile Exchange. The drop in palladium prices is complicated by recent sanctions imposed on Russia, the biggest producer.

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