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Top 5 Reasons Gold Prices will fall again in USA

Gold bullion vs Gold StockPerhaps, the start of 2016 has appeared to be one of the most profitable time periods for gold investors. Since the start of February 2016, gold prices witnessed a surge of 6%. With this, the gold prices in USA came out to be $1.127 an ounce. This appears to be the most sizeable value addition in comparison to the last few years.


During the time of an economic stress, this yellow metal tends to shine brighter than any other asset. This is mainly because of the fact that the yellowish metal is perceived as a reliable store of value. So, in case of any economic downturn, the investors always find relief by investing in gold.

Here, an important question that stems from the present scenario is the assertion whether this gold rally will continue or there will be sizeable decrease in the gold prices in USA. There are certain important factors that have resulted in increasing the gold prices characterized by an oversupply, Chinese market slowdown, fall in the global crude oil prices, decrease in the prices of other metals noticeably copper and palladium, etc.

However, the financial analysts and experts predict a downward trend of this gold rally in near future. Therefore, the investors are asked to assess the market trends before making short term or long term gold investments. So, here are the top five reasons detailing why the analysts feel that the gold prices in USA will fall in near future. Take at look at these factors before making your investment decisions.

Stock Market Stability

The gold prices and stock market stability has always shown opposite trend. It is because of this reason that the financial analysts predict a direct negative relationship between the two variables. It is thoroughly observed that the fall of gold prices is associated with rise in stocks and vice versa. The assertion is proved by looking at the past sixty sessions which has helped in establishing a negative correlation of 0.24 between gold and S&P. There were evidences suggesting the rebounding of the USA equity markets. It is because of this reason that a fall in gold prices is predicted as there are hints of further stimulus from the central banks in further strengthening of equity markets.

Strengthening Dollar

It is predicted that the gold prices in USA will witness a downward trend in near future. It is because of the anticipation that will result in strengthening dollar in near future. The Friday statistics are an emblem of the fact that dollar stood up 0.8% against a basket of leading currencies. The analysts predict that the trend will continue in future and dollar will revert back to pre drop stronger position.

Behaviour of Chinese Market

China is one of the major consumers of the gold. This top notch consumer is selling gold after returning from a week long holiday last Monday. The move is an indicative of the fact that the Chinese investors are dubious about the future of gold as do not expect prices to continue their unprecedented upward move. Hence, the yellow asset cannot be trusted to support the market. This is one of the important reason dictating that the gold prices in US will fall in near future.

Increasing Interest Rate

In respect of the global economic scenario, the Federal Reserve has moved towards negative interest rates that have resulted in increasing the gold prices in USA, because of the negative relationship association. However, the world economists are of the view that the situation has been over read. It is predicted that US Federal Reserve will press at least some upward moves in interest rates. This will result in bringing back gold prices in USA. How interest rate has an effect on gold prices is an interesting area of debate for the financial experts. The financial research analysts have shown a strong negative correlation between gold prices and interest rate. The Federal Reserve is considering revising the interest rate as is manifested in recent day statistics with an increase in interest rate. Because of this move, it is expected that a downward pressure will exert on the gold prices. This is because of the fact that an increased interest rate makes bonds and other fixed investments more lucrative and profit oriented, because of the return they yield, in comparison to investing in gold. Therefore, increasing interest rate will direct the flow in to the investment of bonds and money market funds, as gold produces no yield at all. Henceforth, in such a situation gold becomes a no worth investment.

Surging Oil Prices

Gold prices are also influenced by the global oil price movements. The recent picture of oil prices are projecting stabilized trends. Oil prices have witnessed a surge of 7% in recent times. Economic analysts are of the view that the upward trend will continue in future and hence, there are chances that the gold prices in USA will face a downward trend. The global oil price movements do have an effect on gold price trends in USA. This is primarily because of the fact that crude oil is an important direct and indirect input to the production of gold. Therefore, it sets a negative relationship between the two by ascertaining that lower crude oil prices will help the bottom lines of the mining companies and vice versa.From the chart below it is pretty clear that the prices of gold witness a downward trend in situations accompanied by a strong dollar and an increase price of crude oil.dollar-gold-and-oil-historical-chart-2016-02-25-macrotrends

This chart shows the relationship between crude oil, dollar and gold prices.

About Emaad Qureshi