In just a few weeks, the yellow metal has lost 25%. Here’s why the decline could continue.
Has gold begun its decline? After hitting an all-time high of $5,594.82 an ounce at the end of January, gold has lost 25%, trading at around $4,425. It remains a long way from where it was a year ago, when it had already risen to $3,200, and even further from two years ago, when the yellow metal was trading at around $1,800. In short, its rally seems to be over, and perhaps the price could fall further. But why has gold reversed its downward trend?
There are several factors, and they have nothing to do with the jewelry world. The most striking aspect, if anything, is that gold’s decline continued even during the US and Israeli war against Iran. Yet the yellow metal is considered a safe haven, and when international tensions rise, gold purchases typically increase, as it is considered safer than other financial instruments, such as bonds or the stock market.
According to experts, one of the reasons for the decline, in this case, lies in the sales of gold by some central banks, which had accumulated significant gold reserves in recent years. In particular, Russia, Turkey, and Poland are believed to have sold gold, thus causing the price to fall. Russia is selling to finance the costly war with Ukraine, Turkey to defend its currency, and Poland to finance arms purchases to defend itself from potential Russian attacks. Other countries may also be selling gold to finance rising energy prices.
Another factor that has weakened gold concerns interest rates. When there is a prospect of higher inflation, in this case caused by the war with Iran, which has cut off oil supplies from the Gulf, central banks tend to raise or keep interest rates high. And the yields on Treasuries (US bonds), rising to 4.4% for ten-year bonds, may have attracted some investment. Finally, the high prices reached in recent months have prompted many investors to realize their gains: gold ETFs (investment funds) have seen strong redemptions in the last three weeks.
