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."
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.
Find out about commodities trading and learn CFD strategies at City Index
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.