Why the Gold Price Dropped Sharply Recently

Gold price weakness has been the result of an absence of physical demand and the dependence of prices on leveraged investments

CPM Group | March 23, 2020 | SmallCapPower: The question people keep asking is why did gold fall after rising in recent weeks. The answer is that prices fell because they had risen based on leveraged futures, options, forwards, and ETF buying.

(The following article was published recently on cpmgroup.com)

Win Big With Our Small Cap Picks

 

These leveraged positions were subject to the same liquidity, collateral rules, and margin requirements as other financial instruments, and sold off with everything else.

There had been very little investment demand for physical gold behind the increases in gold prices from June to early September 2019, and from late December 2019 into March of this year.

The price drop reflected this absence of physical demand and the dependence of prices on leveraged investments. This is a condition in the gold and silver markets that CPM has written and spoken about repeatedly over the past two years.

If demand for physical gold had been behind the price increase, the price would not have fallen in this way.

By the way, even at $1,460 gold is higher than it was from early 2014 through the first half of 2019.

To read our full disclosure, please click on the button below: