Gold prices have been on a downward trend since the beginning of the year, as investors shifted their attention to the prospects of economic recovery and higher inflation. The precious metal, which is often seen as a safe-haven asset and a hedge against inflation, has lost about 10% of its value since reaching a record high of $2,058.40 per ounce in August 20201.
However, on Wednesday, October 4, 2023, gold prices showed some signs of stabilization, after hitting a seven-month low of $1,811.27 per ounce on Tuesday1. The spot gold price was up 0.2% at $1,848.49 per ounce as of 09:19:44 NY Time1, while the U.S. gold futures were up 0.3% at $1,851.60 per ounce2.
Some analysts attributed the slight rebound to a weaker U.S. dollar and lower Treasury yields, which reduced the opportunity cost of holding non-yielding bullion. The U.S. dollar index, which measures the greenback against a basket of six major currencies, was down 0.1% at 93.652, while the benchmark 10-year Treasury yield was down 2 basis points at 1.51%3.
However, other analysts warned that the outlook for gold remains bearish, as the market expects the Federal Reserve to start tapering its bond-buying program and raise interest rates sooner than previously anticipated. The Fed’s latest projections, released last week, showed that most policymakers expect at least one rate hike in 20234, while some market participants are betting on an earlier move.
Moreover, gold faces competition from other assets that are seen as more attractive in a post-pandemic world, such as cryptocurrencies and stocks. Bitcoin, the most popular cryptocurrency, has surged more than 300% in the past year, reaching a new all-time high of $58,332.36 on Sunday. Meanwhile, the S&P 500 index, a broad measure of U.S. stock market performance, has gained more than 20% in the same period, hitting a record high of 4,232.60 on Monday.
Therefore, gold investors may need to brace for more volatility and uncertainty in the coming months, as the global economy recovers from the coronavirus crisis and the monetary policy landscape changes. According to some historical data, gold prices tend to fluctuate significantly in response to inflation expectations, interest rates movements, and geopolitical events.
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