Rosalind Evans
In a surprising twist this year, gold, the time-tested refuge for wary investors, is experiencing a downturn. With prices settling at their lowest since March, $1,831.80 per troy ounce, many are speculating about the future role of this precious metal in the global economy.
A significant factor contributing to this decline is the surge in bond yields and the dollar’s strength. Historically, when bond yields soar, government bonds become the darling of investors. They promise regular returns compared to the unpredictable gold market. The dollar’s surge has an additional side effect: it raises the cost for foreign investors to acquire gold, typically priced in the dollar.
The scales tipped for gold earlier this year when it touched a near-record high. This upsurge directly resulted from a combination of US regional bank collapses and persistent inflation. The general sentiment was that these setbacks would prompt the Federal Reserve to pause its interest rate hiking strategy, making gold an attractive proposition again.
However, the subsequent months told a different story. The banking sector showed robust recovery signs, and the US labour market and economy demonstrated remarkable resilience. These developments have reignited concerns that the central bank might sustain elevated rates for extended periods.
Adding fuel to this speculation, the Federal Reserve recently unveiled plans to raise rates again this year, aiming to maintain them through 2024. This decision has sent the US Treasury yields to their highest levels in over a decade, simultaneously boosting the dollar.
The repercussions of these financial movements have been felt across various sectors. Precious-metal miners, in particular, have borne the brunt, with significant names like Barrick Gold, Kinross Gold, and Northam Platinum witnessing drops of 11%, 3%, and 22%, respectively, over the past quarter. The popular SPDR Gold Shares exchange-traded fund hasn’t been spared either, recording a 5% decline during the same period.
Despite these challenging times for gold, it’s worth noting that its allure hasn’t entirely vanished. Retail giants like Costco have reported a brisk sale of gold bars every time they’re restocked on their website. Investment experts, like Matt Dmytryszyn, predict that gold prices might oscillate between $1,700 and $1,900 in the upcoming months. While the future of gold remains uncertain, it undoubtedly still holds a pivotal place in the global economic tapestry.
