Gold prices have suddenly plunged by 30% from the high reached in September. What does this mean and should we be alarmed?
Gold prices are subject to violent price swings because of the influence of commodity traders and hedge funds. Some of the recent decline reflects concern that China’s economy might slow abruptly. While the Chinese economy is unlikely to grow at the double-digit pace of recent years, substantial growth of around 8% per year is still likely. Some of the drop in gold prices also reflects a lessening of concerns about U.S. and global inflation. Hopefully, the Federal Reserve and other monetary authorities will be able to maintain that trust.
Gold is often sought as a refuge driven by fear. We should be more concerned if gold prices were skyrocketing.