Gold prices are plunging in September partly because struggling Eurozone sovereign states are dumping [it] in the open market, speculated Michael Pento, president of Pento Portfolio Strategies.

The other reason, he said, is that the Federal Reserve's latest policy announcement disappointed the gold market by failing to announce an expansion of the Fed's balance sheet.

When under duress these countries are forced to dump what they can. And there just isn't any asset that has performed better in the last dozen years than gold and commodities, said Pento.

Pento considers European sovereigns to be a very few weak hands and the buyers of the gold they sold to be a diffused group of strong owners.

This development, therefore, is good for the gold rally in the long-term, he said.

Below are the five Eurozone countries with the largest official gold reserves (from the World Gold Council):

1. Germany 3,401.0 tonnes

2. Italy 2,451.8 tonnes

3. France 2,435.4 tonnes

4. Netherlands 612.5 tonnes

5. Portugal 382.5 tonnes

Gold, (still) one of the best performing assets in 2011, has plunged in September, falling as much as 16 percent.

Besides Pento's two theories, other theories for gold's sell-off include the CME's margin requirement hikes on gold futures and fund managers selling gold to raise cash for margin calls and redemption needs caused by declines in risk-assets like equities.

E-mail Hao Li at hao.li@ibtimes.com.

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