The price of gold has experienced a significant decline of over 10% from its peak in May 2023. This drop raises questions about the prevailing trend and whether it’s an opportune moment to invest in gold. This decline is part of a broader trend in the metals market, where various commodities are facing downward pressure. Gold itself has declined by 0.6%, reaching $1,836.80 per troy ounce, its lowest value since March.
Why Gold is falling right now?
One contributing factor to this trend is the anticipation of further monetary tightening by central banks, which has added stress to commodity markets. The possibility of more interest rate hikes has strengthened the U.S. dollar, making dollar-backed commodities like gold less attractive. Analysts suggest that as interest rates continue to rise, with even odds of another Fed rate hike this year, this reinforces the dominance of the strong U.S. dollar. Although the U.S. Dollar Index (DXY) has weakened recently, it remains relatively high historically, exerting continued downward pressure on precious metals.
Gold’s struggles are compounded by the belief that it is being tested by the specter of inflation. Recent macroeconomic data from the U.S. has reinforced the notion that the Federal Reserve is likely to maintain a hawkish stance on monetary policy. The U.S. weekly Jobless Claims have consistently surpassed expectations, indicating a tight labor market that could potentially fuel inflation. Additionally, remarks from Minneapolis Fed President Neel Kashkari have cast doubt on whether the central bank has finished raising interest rates, given the ongoing strength of the economy.
Could the price on gold keep on dropping the following month?
Yes, i would suggest that investors should closely watch the release of the Personal Consumption Expenditure (PCE) Price Index, as higher-than-expected figures could signal more rate hikes and further declines in XAU/USD. Over the past three days, precious metals have declined in tandem, with palladium, silver, and platinum all experiencing losses, and gold reaching its lowest point in six and a half months.
Buying gold on a downtrend is a cost-effective long-term strategy.
While it may initially feel like overpaying, it ultimately saves money as prices are expected to drop further. Setting notifications for larger price drops, such as 10% or 15%, can be an effective approach. Looking ahead, the Federal Reserve’s guidance suggests higher interest rates are likely to persist until inflation eases. The recent drop in gold prices is viewed as an opportunity to buy below $1,850. However, predicting further price drops remains uncertain, and the focus is on strategic buying.
Considering the uncertain financial landscape, with declining stocks, rising bond yields and elevated real estate prices, making investment decisions is challenging. I hope is that prices may drop further, and premiums become more favorable for acquiring assets like the coveted Buffalo coins.
There’s a current opportunity in the precious metals market, particularly with gold and silver. This summer has been slow for metals, resulting in ample stock availability and unadjusted premiums. For instance, buying American Gold Buffaloes (AGBs) or American Gold Eagles (AGEs) around $1,875 could be a wise move, considering the expectation that prices will eventually rebound. The recent assurance from Powell about two more rate hikes has influenced this decision.
However, the approach is cautious, with a limit of not getting more than three months ahead of schedule in purchases. Despite the absence of strict logic behind this self-imposed limit, it serves as a personal comfort level threshold. The preference is to wait until premium prices are more reasonable. Currently, Texas Precious Metal offers a 9% premium above spot, making it an attractive option due to the recent price drop. Silver is currently viewed as a better bargain than gold because premiums on silver have significantly decreased, with some options available at just a $1 premium over spot price. In contrast, gold premiums haven’t decreased much, even as sales remain robust despite the fall in spot prices.