Gold price drops 10% in two daysStock market rally sees precious metal price fall

25 August 2011

Investing in gold

The price of gold has fallen dramatically over the past two days

Gold has experienced 10% fall in value just days after its price reached a new record high.

The precious metal's price dropped to $1,714 per ounce, down from $1,913 on 23 August, a fall of 10.4%. It's the largest two-day fall in the price of gold since 1980.

Why has the price of gold fallen?

The price of gold is linked to the wider economy. Recent fears about the Eurozone, US debt and double-dip recessions have caused investors to flock to gold as a safe haven. Over the past few years this has pushed the price of gold up and, given the recent stock market turbulence, it has rocketed - increasing by 25% in the past three months. 

However, a combination of better than expected economic data from the US and a rally in the global stock markets has seen the price drop off sharply. This is combined with an increase in the trading costs of gold, which has caused many large investors to sell off their holdings.

Will gold continue to fall?

It depends on the economic health of the world. If the Eurozone comes up with a credible plan to solve its debt crisis and the US introduces a new stimulus to revive growth, there will other safe places for people to put their money besides gold.

A decrease in demand could lead to further falls in its price. However, some are predicting that gold could rise to $2,500 per ounce by Christmas, and that the correction in its price is a momentary blip.

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