vc_row] vc_column offset=”vc_col-lg-9 vc_col-md-9″ css=”.vc_custom_1452702342137{padding-right: 45px !important;}”] stm_post_details] vc_column_text css=”.vc_custom_1719952505649{margin-bottom: 20px !important;}”]Why is the price of gold falling? Gold is a safe bet. The price of gold is stable in the long term. And yet, it can happen that the price of the yellow metal falls. Why is the price of gold falling? What are the reasons? Decryption by GOLDMARKET, your expert in precious metals.
Gold Price vs. Treasury Bond Rate
Le Gold prices moves inversely to the real interest rate on 10-year US Treasury bonds (TIPS). In other words, an increase in the 10-year TIPS rate will result in a fall in the price of gold. It's mathematical. These TIPS are actually bonds issued by the US federal government. Their interest is to protect investors from the risks of inflation on their savings. Annual inflation is taken into account to calculate the interest to be paid.
Falling Gold Price, Crisis and Inflation
Since the first lockdowns linked to the Covid crisis, inflation has continued to rise. And so has the price of gold. Meanwhile, the growth of the nominal interest rate on TIPS has slowed. A few months later, while the 10-year TIPS rate starts to climb again, it is gold's turn to fall. So it is still a balancing act.
As long as the Federal Reserve does not intervene to lower bond interest rates, the price of gold will continue to fall. It is important to know that a continued increase in 10-year TIPS rates is not desirable for the US government. In an inflationary environment, this could force the government into bankruptcy. The higher interest rates go, the slower interest rates are and so is the stock market.
Regardless of the current trend in gold prices, there is no right or wrong time to invest. Take a diversification approach by investing in a variety of investments. By investing small amounts in gold on a continuous basis, you are sure to secure your savings and assets over the long term.
Gold Price Drop: Geopolitical, Economic and Health Events
Contrary to what one might believe, the abandonment of the gold standard or the arrival of paper money have not turned investors away from gold, quite the contrary. And this is all the more true in the event of a major crisis, whether economic or political. The "Arab Spring", the subprime crisis, the coronavirus crisis or more recently the war in Ukraine, each of these events destabilizes the financial markets, which often experience a sharp decline. In these situations, savers massively turn to gold, THE safe haven when the future is uncertain, causing its price to rise. The economic crisis due to Covid in 2020, for example, saw an increase in demand for gold, the price of which recorded a record increase of 20%.
Gold Price Drop: Inflation
When households lose purchasing power because all prices increase, we speak of inflation. And in this case the country's currency is also impacted, losing value.
Unlike currencies, gold is independent and has its own value, recognized worldwide. Its value therefore does not fall like that of paper currencies. It is even possible to see the price increase because many investors will want to protect their savings by buying gold. In the event of high inflation (or hyperinflation), the value of their portfolio may even increase.
Interest rates
Inflation always impacts the profitability of bonds and stock market investments downwards. Indeed, the more inflation increases, the more real interest rates (gross profitability minus inflation) fall. This situation then benefits more secure investments that are independent of central bank policies, such as gold. Since demand for gold is strong, the price will naturally increase.
Conversely, when interest rates are low, investors will turn to riskier investments but whose yield is more interesting than that of gold. The demand for gold will therefore fall, and with it the price of the yellow metal.
The US dollar rate
The US dollar and gold are historically linked. Gold is in fact quoted and traded on financial markets around the world in US dollars. This means that a price is given in dollars for an ounce of gold. If the dollar falls – which can happen in times of inflation for example – it will take more dollars to buy an ounce of gold, and the price of gold will therefore increase. To summarize, the price of gold theoretically follows the opposite path of that of the US dollar.
Planned depletion of gold resources, political instability in the world, economic crises, inflation, uncertain health context... Many factors influence the price of gold, but the yellow metal. /vc_column_text] stm_sidebar sidebar=”10172″] stm_post_bottom] stm_post_about_author] stm_post_comments] stm_spacing lg_spacing=”80″ md_spacing=”80″ sm_spacing=”30″ xs_spacing=”20″] /vc_column] vc_column width=”1/4″ offset=”vc_hidden-sm vc_hidden-xs”]
