Why did gold fall today despite being considered a safe haven?
Gold declined today by more than 1% and neared the 4,300$ per ounce area.
This time, the reason is not a disappearance of demand for gold.
The dollar has become stronger.
Remarks from Federal Reserve officials were more hawkish, and markets started raising their expectations for the possibility that rate hikes will continue. When interest-rate expectations rise, holding interest-bearing assets becomes more attractive than gold, which does not pay interest.
At the same time, the dollar reached its highest level in about two months, which further weighs on gold because it is priced in dollars.
But what’s interesting:
Gold has not collapsed.
It is still moving within a range close to $4,300–$4,400, so what we’re seeing so far may be a correction under pressure from the dollar and interest rates, not necessarily the start of a long-term collapse.
Here’s the idea:
Sometimes gold doesn’t drop because people no longer want gold… but because the dollar has become temporarily more attractive.
And the real question now:
If rate-hike expectations ease and the dollar weakens, will gold return to test its previous peaks?
Gold declined today by more than 1% and neared the 4,300$ per ounce area.
This time, the reason is not a disappearance of demand for gold.
The dollar has become stronger.
Remarks from Federal Reserve officials were more hawkish, and markets started raising their expectations for the possibility that rate hikes will continue. When interest-rate expectations rise, holding interest-bearing assets becomes more attractive than gold, which does not pay interest.
At the same time, the dollar reached its highest level in about two months, which further weighs on gold because it is priced in dollars.
But what’s interesting:
Gold has not collapsed.
It is still moving within a range close to $4,300–$4,400, so what we’re seeing so far may be a correction under pressure from the dollar and interest rates, not necessarily the start of a long-term collapse.
Here’s the idea:
Sometimes gold doesn’t drop because people no longer want gold… but because the dollar has become temporarily more attractive.
And the real question now:
If rate-hike expectations ease and the dollar weakens, will gold return to test its previous peaks?