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The Gold price dropped to €45,660 per kilo this week, reaching its lowest level in almost a year. The price of the precious metal is under pressure due to the rise in interest rates and improved prospects for the recovery of the economy. Investors also expect the new $1.9 trillion US stimulus program to make a positive contribution. In dollar terms, the price of the precious metal fell to $1,707 per troy ounce, the lowest level in eight months. Silver and platinum are also under pressure, but these precious metals have outperformed gold in recent months.
Last year, the Gold price A record of more than €56,000 per kilo, driven by extremely low interest rates and large-scale stimulus programs by governments and central banks. In recent months, interest rates on government bonds have risen considerably, which is unfavorable for gold. The precious metal does not earn interest and is therefore less attractive at higher interest rates. When gold prices hit a record high in early August, US 10-year yields were at a low of 0.5%, while last week yields were still at a low of 0.5%, while last week yields were still at a low of 0.5%. 1,5% ticked. This increase makes bonds more attractive against the precious metal.
Gold price to lowest level in almost a year
According to Commerzbank, ETFs' gold inventories fell by 14 tonnes on Monday. That was the largest outflow on a single trading day since the beginning of this year. By way of comparison, last year these investment products were still added to the more than a thousand tons of gold to their stocks. Many investors still see the precious metal as a safe haven, due to the extreme money growth since the corona crisis. Governments have gone deeper into debt to keep the economy afloat. At the same time, central banks ensured favourable financing conditions by buying government bonds.
Optimism about the recovery of the economy has an unfavorable effect on the gold price, but turns out to be positive for other precious metals such as silver and platinum. These precious metals have many more industrial applications and can therefore count on extra demand when the economy picks up. Silver and platinum have fallen slightly in price in recent days, but are respectively more than 70 and 40 percent higher than the level of April last year. As a result, these precious metals are currently doing much better than gold, which was still the best return at the beginning of the corona crisis yielded.
According to analyst Georgette Boele of ABN Amro, $1,700 per troy ounce is a Important level of support for the price of gold. So it remains to be seen whether the price will remain above this level. She expects the silver price to fall a bit, while still positive platinum.
Higher interest rates and an improved economic outlook are bringing the price of gold back to its lowest level since April last year. This is despite the fact that governments and companies have since gone much deeper into debt and the money supply has increased considerably. It is therefore questionable how much further the gold price can fall. Due to the corona crisis and the relatively high exchange rate, demand for the precious metal in China and India was exceptionally low last year. This year, these important markets can show a recovery and support the gold market.
Interest in the yellow metal may also increase again among investors, especially if inflation rises further. Inflation expectations have risen in line with interest rates in recent months. This means that the real interest rate, the interest rate after adjusting for inflation, is still negative. This means that savings are still losing purchasing power. Is now the time to buy gold?
Disclaimer: Holland Gold does not provide investment advice and this article should not be considered as such. Past performance is no guarantee of future results.
This contribution was made from Geotrendlines
