No physical gold buying to the rescue

Unlike April's $200/oz drop in two days, no surge of physical demand has appeared in response to the gold price's dip below $1,200.

A number of factors are at play, causing speculation that gold has a ways further to fall.

First, the consumer rush to gold dealers in April likely depleted available household savings for purchases of bullion. Even though the "bargains" are better this time around, budgets are restricting households from loading up further.

Second, this latest collapse has increased fear about the future of gold. With the US Federal Reserve on course to scale back its quantitative easing, physical buyers may be increasingly spooked by the prospects for a once attractive investment.

Third, Indian gold import tariffs have begun to bite. The government continues to tighten its grip on the country's gold trade, hiking the import tax from 2% to 6% over the past year and banning traders from importing gold on margin.

Fourth, China's bank liquidity concerns could be hindering demand in the short term, as "buyers worry about the impact of a slowdown in Chinese growth and a possible credit crunch."


Sources: The Economic Times; Xinhua; Kitco News