Why is the price of gold trending down?
In times of global crises, the price of gold shoots up as investors look at the yellow metal as a safe haven against inflation. But that has not been the case this time. Gold has been under pressure since the United States and Israel attacked Iran in late February, launching a
In times of global crises, the price of gold shoots up as investors look at the yellow metal as a safe haven against inflation.
Gold has been under pressure since the United States and Israel attacked Iran in late February, launching a months-long war. Prices have fallen from a high of $5,303 per troy ounce (31.1g) on January 28 to $4,235 on Friday.
That is because soaring inflation has raised concerns that central banks will not slash interest rates. They may even hike them to rein in prices.
The roots of the inflation spike lie, in large part, with the Strait of Hormuz.
To retaliate against the US and Israel, Iran has been blocking traffic through the waterway since the start of the war, impeding a major artery for oil and gas shipments. Energy prices have shot up in response, which in turn has pushed up inflation.
In the US, inflation is at its highest in three years, at 4.2 percent . At the same time, the country’s job market has held steady, dashing expectations of any immediate cuts to interest rates.
While gold acts as an inflation hedge for investors, the higher interest rates tend to weigh on the metal.
Gold, after all, is considered a “non-yielding” asset, as it does not generate income beyond its own worth. In other words, to profit from gold, the metal’s value has to increase.
