Gold price drops sharply on US economy hopes

  • 25 August 2011
  • From the section Business

The price of gold has plunged 9.3%, after hitting a record $1,913.50 an ounce on Tuesday, as markets became more upbeat about the economy.

By late trading in Asia on Thursday, the precious metal had dropped to $1,738, while stock markets continued to rally.

Analysts put the falls down to profit-taking and hope of new measures in the US to try to bolster its recovery.

Gold is perceived as a safe investment in times of uncertainty.

Its price has risen steadily this month during a tumultuous period on the markets caused by fears about the global recovery and euro debt crisis.

Some predict that Federal Reserve chief Ben Bernanke will signal a new round of quantitative easing (QE) to try to kick start the US's sluggish economy when he speaks at a gathering of central bankers on Friday.

They say that hopes of a healthier US economy make gold less attractive as a haven investment.

However, QE was also previously cited by other analysts to explain the jump in the gold price to a record high on Tuesday.

According to their line of thinking, investors assume that QE - in which the central bank injects new money into the economy - could depress the value of the dollar, making gold a more attractive investment.

The bullish sentiment, which saw European and US stock markets rise on Wednesday, spilled over into Thursday trading in Asia, with Japan's Nikkei ending the day 2% higher and Hong Kong's Hang Seng up 1.1%.

Stronger-than-expected US durable goods data, a leading economic indicator, could also have helped shares. The latest figures showed that companies ordered more big ticket items such as cars and planes in July.