Last Updated : 06 December 2012 at 11:40 IST
Gold crash: Three trader level reasons
Source :Commodity Online Editorial Desk
Author :Rakesh Neelakandan
Seasoned observers of markets say that December is a weak month for commodities. It could be the year-end effect, a sort of psychological resignation taking over the markets only to make a comeback in January.
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The current blood bath in gold can have many reasons. I would come up with three reasons, the not-so-common-ones, the reasons that may sometimes be obvious but get missed more often. I would rather focus on the micro aspects of the reasons than their macro. And these reasons bank on a trader's sense rather than long term investor's sense.
Reason 1: Subdued trend in crude oil prices
Crude oil has seen dwindling of its gains. Brent crude currently is ruling below the magical $111 barrel mark even as its trans-Atlantic counterpart is at $87 levels, way below its previous surge levels. It has to be noted that people do channel the money they book as profits in crude oil to gold.
When crude oil prices go up, there is a tendency for gold to come down. So, when it happens, traders generally sell crude oil and buy gold and vice-versa.
With crude prices ruling low, the scope is less for traders in crude oil to book profits and invest in gold contributing to bearish sentiments.
Reason 2: Uptrend in stock markets
Stock market uptrend in India has made a dent in gold prices here. As stock markets rule high, traders opt for an investment in stocks rather than in commodities. Since a major chunk of investors invest in metals-energy complex; when the stock markets rise, the said complex, including bullion, suffer the most on routing of money.
Reason 3: December effect
Seasoned observers of markets say that December is a weak month for commodities. It could be the year-end effect, a sort of psychological resignation taking over the markets only to make a comeback in January. (email@example.com)
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