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Gold prices fall 10% as need for 'safe haven' fades

After a dazzling rise to more than $1,900 an ounce, the yellow metal has clearly lost its luster. The price of bullion has slumped by 10 percent since the end of last week, down to $1,420 an ounce.

China’s economy -- the world’s second largest -- has slowed  from an annual growth rate of  7.9 percent  to 7.7 percent. Meanwhile India’s inflation rate has declined to a three year low of 6 percent. These figures have been partly reflected in the plummeting price of gold -- a traditional hedge against inflation. 

After a dazzling rise to more than $1,900 an ounce, the yellow metal has clearly lost its luster. The price of bullion has slumped by 10 percent since the end of last week, down to $1,420 an ounce. 

"It's not just gold," says Julia Coronado, chief economist at BNP Paribas. "Commodity prices, like oil, are falling and other investments that are tied to inflation."

Gold had been driven up by fears that money printing by central banks would devalue paper currencies. But China’s slowing growth and India’s cooling inflation rate suggest otherwise. A falling price of gold might suggest that inflationary fears are abating.

Rupert Nathan, metal analyst at the financial website Fat Prophets, thinks the price of bullion could have further to fall, but he doesn't believe it will fall through the floor. He says that Japan has just embarked on a major round of money printing. And there’s enough political tension over North Korea to underpin bullion as the ultimate safe haven.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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