Gold Prices Plunge: 5 Reasons Why Gold Is Bearish

The price of gold dropped more than 8 percent by midday today to $1,368 an ounce, a slide of over $100 an ounce. It was expected to the biggest one-day decline in metal in 30 years, and the first time the value of gold has dipped below $1,400 an ounce since March 2011. After 12 years of yearly gains, it seems possible that increases in the value of the yellow metal may be subsiding.

1. The Federal Reserve is nearing a decision to wind down their bond purchases, Reuters reported.

One of the reasons why the price of gold has been so high in recent years is because of the Fed's policy of creating new dollars under what it calls "quantitative easing". Many of those dollars have gone toward gold, which is perceived as being a hedge against inflation and a safe haven in uncertain times. Despite sluggish growth in the US economy, the Fed is expected to withdraw its monetary stimulus soon.

2. Global inflation is falling.

Businessweek called this the most important factor in the reduced value of gold, writing that gold buyers who had previously bet on a spike in inflation were now scrambling to sell. According to JP Morgan Chase's global consumer price index, which records information on the 30 countries responsible for more than 90 percent of the world's economic output, worldwide inflation peaked at 4 percent in 2011. Since then, it's only fallen; as of February, global prices rose only 2.5 percent from what they were a year earlier. A recent report by JP Morgan on global inflation cited by Businessweek said that it would likely continue to slide.

3. Chinese buying is slowing.

Chinese economic growth figures have come out weaker than expected lately, weighing on markets. According to Chinese government figures, the nation's economy expanded 7.7 percent in the first quarter of the year - a disappointment, as expectations were for an 8 percent increase. The price of gold had for years been partially supported by the country's rise to the second position in the world's largest economies.

4. Indian buying is slowing, too.

The Wall Street Journal reported that an Indian gold industry group warned that the country's investors are losing confidence in the metal because of the slide. The president of Bombay Bullion, Mohit Khamboj, estimates that 1½ tons of gold will be sold daily by long-term investors, just in the city of Mumbai.

"The market saw gold going lower, and everyone panicked," said Pradeep Unni, head of research at Richcomm Global Services, a Dubai-based commodity broker. "The most important factor for gold now is Indian and China demand."

It's expected that the slide in Indian demand will be slowed temporarily as the traditional wedding season approaches and consumers buy gold as gifts for brides.

5. Cyprus is considering selling its gold reserves to finance its EU bailout.

This may not actually happen. Still, the news - which broke last week - has led to speculation that other troubled European economies may follow suit.