Gold prices have dropped to a three-year low as the precious metal market continues through a massive correction phase.
The price of gold on Wednesday fell 3.5% to US$1,229.60 an ounce, the lowest level since August 2010, said Bloomberg News.
Gold prices have been in steady decline in recent months as investors who bought the asset to hedge against high inflation and a weaker US dollar shed their holdings.
Spot prices for gold have fallen more than eight per cent since last week when Federal Bank chairman, Ben Bernanke, out lined a plan to wind back massive stimulus measures.
While investors regularly turn to gold as a refuge in times of economic downturn, the metal can also act as a risky asset.
'Gold is not going to be a major attraction when there's no inflation and interest rates are rising,' said Bill Baruch, senior market strategist with iiTrader.
Neil Charnock, an economist at leading gold investment and trading company Gold Oz has predicted the price of gold will drop further as the market faces what he calls a ‘correction’ phase that is expected to last for at least 12 months.
“My gold targets are at around US$1100 and possibly as low as US$900 with a major influence of a strong USD over this correction period,” he told Australian Mining.
“We are in a major correction that will most likely last another 12 to 18 months,” he said.
The massive drop in prices has already seen the loss of jobs in the sector, as well as projects being scaled back.
Barrick Gold have cut around 200 jobs from their worldwide operations, Alacer Gold has announced its intent to sell of its Australian assets, and Kalgoorlie Consolidated Gold Mine has announced low gold prices and high production costs have forced them to run cost reviews in order to keep the mine viable.
Meanwhile, Tanami gold have put their Kimberley-based Coyote mine into care and maintenance and Focus Minerals has announced plans to halt operations at its Laverton Gold project as rising costs were making the project unprofitable.
Ole Hansen, Saxo Bank’s head of commodity strategy said investors in gold ETFs (exchange-traded funds) are exiting, while hedge funds are short-selling the metal – effectively betting the price will fall further.