As investors watch global markets with concern, gold prices have suffered a significant decline, shedding more than $220 from their all-time high last month. Factors such as the strength of the U.S. dollar and expectations of slower U.S. interest rate cuts have put increased pressure on the market, according to Reuters analysis.
The sharp drop in gold prices earlier this week marked a steep descent, with gold futures down 0.2% to $2,567.10. This trend was also reflected in spot contracts, which fell to $2,562.61 an ounce, down more than 4% since the start of the week. The decline was mainly due to the strength of the U.S. dollar, making gold more expensive for holders of other currencies.
Analysts point to the strength of the US dollar as the main factor behind the fall in gold prices. Indeed, when the dollar appreciates, as reported by Reuters, gold becomes more expensive for investors using other currencies, leading to a drop in demand for the yellow metal.
Expectations about US monetary policy also weighed on gold prices, following remarks by Federal Reserve Chairman Jerome Powell that there was no rush to cut interest rates. In this context, higher interest rates have become an additional cost of holding gold, which does not generate returns, contributing to the fall in its price.
In addition, gold-backed exchange-traded funds have seen significant outflows this month, reflecting a growing disinterest in gold among some investors. During the first week of November, these funds recorded outflows of approximately $809 million (equivalent to 12 tonnes), reflecting the liquidation of hedges previously established in anticipation of the US elections.
Despite these short-term pressures, the World Gold Council report suggests that this current correction is unlikely to turn into a sharp decline in the long term. Factors such as geopolitical concerns and the expected inflationary policies of the US government support continued interest in gold as a safe haven.
In the current economic environment, gold remains a focal point for many investors seeking a hedge against inflation and economic risks. Despite the recent correction in its prices, forecasts suggest growing demand for gold in the long term, particularly given the many risks associated with global economic policies.
Gold’s recent performance has been largely driven by the strength of the US dollar, fueled by expectations of smaller interest rate cuts by the US Federal Reserve. In addition, positive economic data, such as an unexpected rise in US retail sales, are supporting higher US Treasury yields, strengthening the dollar and increasing the cost of gold for holders of other currencies.
Furthermore, US President Donald Trump’s plans to raise tariffs suggest the potential for higher inflation, which could hamper future monetary easing policies and increase the likelihood of gold price volatility over the long term, according to experts quoted in the Reuters economic report.
In conclusion, the bearish trend in gold prices is the result of a convergence of complex economic and political factors. As investors navigate a climate of uncertainty, gold continues to play a key role as a safe haven asset in the face of economic risks and global market fluctuations. It is essential for market participants to closely monitor these dynamics and adapt their investment strategies accordingly.