Is Gold losing its shine as price tumbles

In the traditional market, Gold is the hedge against financial turmoil but its price recently has tumbled, wiping away gains made this year. Its highest point is $1748 per ounce in Feb this year. So what are the factors causing the price of gold to drop?

The US Federal Reserve has kept the long term interest rates low with the prolonging of Operation Twist till the end of the year and this undermines the strength of Gold which is a traditional hedge against inflation as investors see less need to buy bullion.

Gold has certainly made lots of progress in the last 5 years, having appreciated 150 percent. This means that when the stock market is weak, investors will take the profit from gold investments and cover losses in other places.

In terms of foreign exchange rates, the rise of the US dollar has also made gold more expensive, especially in to India. However, as we enter the Indian wedding season in September, we can expect a rise in demand for gold.

So what does this mean to the Gold investors? In the medium to long term, gold is still a good investment with the price tipped to reach US$1800 per once. Investors should not put more than 10% of their portfolio into gold. You should keep an eye on the movements of the interest rates as a significant rise can cause the gold price to drop.

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