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What's Up With Gold?

Gold
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Gold

What's up with gold? Gold, which was weak overnight, dropped further just after 9pm ET as the front month futures contract hit roughly $1,677. Why? That is the 200-day moving average.

But breaking through the 200-day moving average is an effect, not a cause. Talk of slower growth in developing countries — particularly China — is the main culprit.

Remember, India and China are the two largest retail buyers of gold in the world. How much? According to a paper by GMO, China and India accounted for one-third of all global gold purchases between 2000 and 2010.

In other words, while gold might go up on worries about debasement of currency, gold can also trade on other fundamentals — like whether consumers in China will still be able to buy as much if the Chinese economy slows down.

One other point: inflation worries is a major driver of gold, but the OECD noted fairly low inflation of 2.8 percent in the twelve months ending in January.

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