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Explained: Why gold prices fell below Rs 50,000 per 10 grams

Explained: Why gold prices fell below Rs 50,000 per 10 grams

Explained: Why gold prices fell below Rs 50,000 per 10 grams
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By Ankit Gohel  Aug 12, 2020 1:21:19 PM IST (Published)

Gold prices fell by almost Rs 5,000 per 10 grams while Silver plunged more than Rs 15,000 per 1 kg in two sessions. In the international market, gold sank as much as 4.3 percent on Tuesday, facing its worst one-day rout in 7 years.

Gold prices fell by almost Rs 5,000 per 10 grams while Silver plunged more than Rs 15,000 per 1 kg in two sessions. In the international market, gold sank as much as 4.3 percent on Tuesday, facing its worst one-day rout in 7 years.

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Tough the yellow metal prices rebounded sharply from lows on Wednesday, it was still trading more than 1 percent lower on MCX.
Here are some reasons that led to a massive sell-off in gold and silver prices:
Hopes of coronavirus vaccine:
Investor risk-appetite improved after Russia on Wednesday officially launched a vaccine that could arguably be the world's first COVID-19 treatment system. The vaccine candidate, 'Gam-COVID-Vac Lyo' developed by Moscow's Gamaleya Institute with help of Russian Direct Investment Fund, will likely get approval for civilian use within three to seven days of registration by regulators, a Bloomberg report said. In addition to Gamaleya, the Vektor State Research Centre of Virology and Biotechnology is also working on a potential vaccine.
Better US macro data: US producer prices increased by the most in more than 1-1/2 years in July. The producer price index for final demand increased 0.6 percent last month, driven by a surge in portfolio management fees and rising costs for gasoline. That was the biggest gain since October 2018 and followed a 0.2 percent decline in June. In the 12 months through July, the PPI dropped 0.4 percent after falling 0.8 percent in the 12 months through June, Reuters reported.
Strong data helped accelerate the sell-off in gold.
Jump in US Treasury yields: The yield on 10-year US debt, which rises when bond prices fall, made its steepest gain in two months on Tuesday ahead of the largest ever 10-year auction later on Wednesday. A spike in US yields made the non-yielding bullion less attractive.
Doubts over US stimulus package: The doubts resurfaced over a swift resolution to the stalemate between US lawmakers on a new coronavirus relief bill. The US lawmakers on Tuesday ended a fourth consecutive day without the resumption of talks over an additional fiscal stimulus package. This faded hopes of additional stimulus package. Easy money or excess liquidity is supportive of gold prices.
Profit booking: Investors opted for profit booking in the precious metals after the record-breaking rally witnessed in the previous week that was led by weakness in the US dollar and expectations of US stimulus package.
“It is the right time of profit booking in Gold and Silver, However, the trend of bullions is still positive, but traders should have a cautious approach while taking any position in Bullions on these higher levels. Prices are now in the overbought zone. The dollar index is recovered from lower levels due to hawkish Job data released last week. We expect some profit booking in Gold and Silver as in the physical market people are selling their ornaments and bars for getting an advantage on higher levels,” said Anuj Gupta, DVP- Commodities and Currencies Research, Angel Broking Ltd.
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