Gold is on the downside

There is much to suggest that the price of gold should rise. But the opposite is the case. In the course of the year, the precious metal has become significantly cheaper. And Federal Reserve Chairman Jerome Powell is not of much help here either.

For many months, gold has enjoyed great popularity amid the corona pandemic. But the times are over. Since the beginning of the year, the precious metal has lost more than ten percent of its value and, according to the financial services provider Bloomberg, is heading for the worst quarter in almost 40 years. Today the price of gold fell to around $ 1,690, its lowest level in nine months. Exchange traded index funds backed by physical gold have seen brisk outflows. The growing supply continues to depress the price of the precious metal.

This is also remarkable because the environment should actually be excellent for investing in gold. Vaccinations against the virus are gaining momentum worldwide. This means that the end of the corona crisis is at least in sight. The prospect of an upturn in the economy traditionally increases the fear of inflation – and gold is a popular protection against inflation.

As strong as the inflation worries may be for some investors, something else is much stronger: In view of the years of low interest rates, interest-free gold has become much more attractive. But capital market interest rates are currently rising – and gold is losing its shine with it.

Why does gold continue to sag?

Gold is currently facing headwinds from rising bond yields, especially in the US. And the head of the US Federal Reserve, Jerome Powell, caused disillusionment among gold investors: He was completely relaxed in view of the rising yields and did not even begin to suggest doing anything about it.

At the same time he assured that there was calm on the inflation front as well. In view of the new billion dollar aid package from US President Joe Biden, an upturn in the labor market and an increase in prices can be expected. But it will very likely remain with a one-off effect in the course of a wave of consumption after the pandemic subsides. He does not expect that inflation will solidify. Against this background, a continuation of this trend is currently to be expected, said analyst Jeffrey Halley of the brokerage house Oanda with a view to the falling gold price. He thinks a fall to around $ 1,600 is possible.