Gold suffers biggest daily drop of 2014

<p>Gold futures dropped by 2.3 per cent on Monday, the biggest of 2014.</p>

Gold futures dropped by 2.3 per cent on Monday (July 14th), the biggest daily decline of 2014.

The current price for the commodity for August stands at $1,306.70 (£762) an ounce representing a fall of $30.70. It is the biggest daily drop for a nearby futures contract since December and analysts are pointing to a lackluster physical demand for gold as one of the key reasons for its slump.

Silver also performed poorly on Monday with a 2.6 per cent drop to $20.91 an ounce but the commodities misfortunes were also compounded by solid gains for stocks as investors decided to book profits on recent gains as opposed to be reinvesting in commodities. Gold prices ended last week (July 11th) on a drop although maintained a sixth consecutive weekly gain but the start of this week does not bode well.

In a note, Eugen Weinberg, commodity strategist at Commerzbank in Frankfurt, explained that India is one of the determining factors for this slump. The country has decided to maintain its ten per cent import duty on gold and silver which Mr Weinberg believes will dampen future gold demand expectations.

The Commerzbank commodity strategist added: "Overall, we believe that physical demand has remained short of expectations, the latest price increase having been driven largely by speculation."

India situation

A significant increase in gold imports over the course of June has seen India's trade deficit grow to an 11-month high. The shortfall increased from $11.23 billion in May to $11.76 billion the following month and thanks to India's decision to raise duties on gold it meant that a fifth of all commodity important needed to be re-exported.

The change has been felt across the world leading to a downturn in the price of gold futures and making investors reluctant to deal in gold more often.

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