Gold prices heading for more volatility

Global gold prices have seen sharp fluctuations in recent days. Market sentiment worsened after Cyprus said it would sell gold to save its banks. This may force investors to turn to other asset classes to mitigate the losses in gold.

Lu Zhengwei, Chief Economist, Industrial & Commercial Bank Of China, said, "If the EU asks Cyprus to do that, it may ask other countries in debt to do the same. The gold reserve of the Italian central bank is among the world's top ten. If Italy is obligated to do what Cyprus had done, there will be too much gold sold to the market. It will be a huge impact. In that way, investors have no choice but to reduce the long position of gold."

Shi Chunguang, Analyst, Bank Of Communications, said, "It is not unusual to see only the gold price drops. But after that, other commodities also started to drop. Investors have to withdraw their capital from gold investment, and put it into other products for higher returns. So in the near term, it's likely we'll see volatile currency and equity markets."