Gold Price Plunges to Lowest in Two Years

On the markets today the gold price plunged do a two year low!  Gosh, it was just March of this year that gold spiked up the over $2,000 an ounce, and yet, today is closed at a new two-year ago below  $1,700 per ounce!

• Gold futures GCZ22, -2.12% for December delivery fell $31.80, or 1.9%, to settle at $1,677.30 an ounce on Comex.

Gold Price Plunges to Lowest in Two Years

Keep in mind here we’re not talkin about unrefined gold oh, we’re talkin about 24-karat refined gold  commonly purchased as gold coins and gold bars.

One would think, that is we are experiencing the highest inflation rates in 40 years, I steadfast asset like gold would be appreciated.  Also, with all the troubles in the world, perhaps the worst of which is the Russian Ukrainian War, the gold price would be through the roof.  I mean, after all one mistake here oh, and we could easily end up in World War 3!

Yet, with all these factors the spot price of gold actually hit its high back in March of this year and has been steadily declining ever since!  Probably, the major factor for this is the Federal Reserve increasing interest rates.  Well, you may be asking yourself what is interest rates have to do with gold?  The fact is if you buy large quantities of gold, you get no interest on your money at all.  Yes, you’re hoping for appreciation in the gold price because that’s the only way you could profit. So, when interest rates rise, many investors start lighting up on their gold holdings in favor of Treasury Bonds and bills that are seeing their yields increase.

Gold has historically been seen as a hedge against inflation, but it has proved to be a poor hedge against rising prices, with investors disliking the metal because of rising bond yields and a very strong U.S. dollar.

In an environment of rising interest rates around the world, investors have instead chosen to sell assets that have little or no yield, such as low-div stocks and metals. The latter also costs money to store, making it even less appealing from an investment point of view in the current climate.

In addition, Chinese economic growth has slowed sharply. This could impact demand for gold jewelry in the world’s biggest consumer of the precious metal.

Also, next week the Federal Reserve has a meeting at which they are going to announce the next interest rate hike. After this week’s bad news on the increasing inflation rate, a number of economist are predicting that next week’s fed rate hike could be one full percentage point!

As I’ve already said, rising interest rates usually correlate with a declining spot gold price.  So, it seems pretty certain, that if we have the anticipated one full percentage interest rate increase next week gold could take another hit.

Gold Price Plunges to Lowest in Two Years

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