Gold Prices Drop to a Three Month Low – A Rarity

Gold prices fell as the European Central Bank (ECB) was unable to provide assurance that it will offer stimulus to help the region deal with its debt crisis. The bank retained its key interest rate of 1%. However, Mario Draghi, the president of the bank did not mention whether the bank will do more to help the economy which is struggling.

Investors believe that the likelihood that the Federal Reserve will start one more session of bond purchases is low, especially if the ECB does not do the same. A reason behind this - the US economy is stronger than the European economy. In the recent past, a few European nations entered recession.

Precious Metal to not have Support if there is Lack of Additional Stimulus

According to Vision Financial Markets’ vice president of metals trading, Dave Meger, if no more stimulus is likely to come from the European quarter, there are low chances that the US will discuss more stimulus. He stated that with a lack of additional stimulus from either side, the precious metals will not have much support.

For several months, gold has been supported to a certain extent by the bond-purchasing programs of the Fed. They are aimed at stimulating growth in the economy. With the programs, the interest rates stay low and put pressure on the dollar, which fell against other currencies. As gold is priced in the US currency, a drop in the dollar can make the yellow precious metal a good option for those who trade in other currencies. June delivery gold dropped to $1,634.80 per ounce, when it shed $19.20.

Three Month Drop – First Time in 11 Years

This is the first time in 11 years that gold dropped three months in a row. Before April 2012, when the price of the precious metal fell, the longest successive occurrences were for two months. A continuous drop in gold prices like the current 3 month dip is a rarity in the markets. This has happened just 65 times in three month terms that total just 661, since 1957. Such three month drops are generally not seen in a bullish market.

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