April 8th, 2024 – It is thought by many that good times for always increasing gold prices may have come to an end and the price of the commodity could experience a downturn shortly. The spot yellow metal price has hit a fresh record of $2,375.5 per ounce on Monday confirming the positive trend of the “safe haven” in times of uncertainty like these. Notwithstanding that, there are strong beliefs that it could be the moment for the ongoing growth to cease, therefore for prices to decrease as several other factors come into the game.
The first among them is the so-called “catch-up effect”: investors think gold has to catch up with other assets and keep investing in it, as a consequence of actually projecting such expectations as reality, they influence the prices themselves by continuing investing in gold. Investors can be influenced by their expectations based on past performance data rather than by the effective acceleration in the prices.
Another noteworthy correlation is the one between gold and the strength of the U.S. Dollar; it is well known that the weaker the dollar is, the more attractive an investment in gold will be, but what is now contradicting and, according to many experts, a sufficient reason to expect gold prices to decrease shortly, is that at the moment, both gold and the U.S. Dollar are considered to be “strong”. On the one hand, the commodity’s price is always increasing as wars and tensions make our environment uncertain and people choose to invest in a “secure asset”, on the other hand the U.S. Dollar has acquired remarkable strength; it is clearly evident that expecting a consequence from this inconsistent scenario is totally logical.
Furthermore, rising bond yields could make them more attractive than gold influencing demand and leading to a correction in prices, as well as, relatively low inflation would no longer imply the need for an inflation hedge and investments in gold would drop.
Author: Ilaria Savignoni