With currency values no longer pegged to gold, there's little reason for governments to hold large reserves. But central banks don't get pleasure out of it. They stick it in a vault and don't lend it out. Asia's economic problems also have contributed to the sagging price, because Asians have been among the world's biggest gold buyers in recent years, accounting for as much as one-fifth of world consumption. With Asian economies likely to slow, or even shrink, traders are betting that Asians won't be able to afford quite as much gold in coming years.
Less demand means lower prices.
But analysts say it's unlikely that gold prices will fall much further. With prices now below that level, many mines may close. J. Clarence Morrison, a gold analyst for Prudential Securities, estimates that as many as 17 gold-mining companies worldwide may be bought or go out of business. As these mines close, that will reduce the available supply. Closing mines will exacerbate this imbalance.