The Federal Reserve’s landmark decision to leave interest rates unchanged has had a profound impact on the gold price in recent months. Last summer, when the Fed first announced it would leave the federal funds rate at a near-record low of just over 2%, many predicted that gold prices would skyrocket. Instead, gold has steadily declined, losing close to 12% of its value since June 2019.
So, what has caused this drop in the gold price? The main culprit appears to be the recent strength of the U.S. dollar. As the Fed maintained a steady monetary policy, the dollar gained strength, making gold a less attractive investment option relative to other currencies. Furthermore, the Fed’s decision to keep interest rates unchanged has caused investors to lose confidence in the yellow metal as a store of value, as they can no longer expect to receive a return on their gold investments.
Investors have also been turned off by a recent collapse in demand for industrial gold. This is largely due to the economic slowdown in China, the world’s largest consumer of gold. As Chinese businesses have tightened their belts, they have reduced their purchases of industrial grade gold, which has driven prices down.
There is also uncertainty about the geopolitical situation in the Middle East, which has contributed to investors’ unease. As tensions in the region increase, global investors are becoming more hesitant to commit money to gold.
While the current gold price is not as attractive as it was a year ago, there is still potential for investors to profit in the short and long-term. Gold is not only viewed as a safe-haven asset in times of economic uncertainty, but it also typically performs better in periods of inflation. Going forward, if inflation picks up or if the U.S. dollar begins to weaken, investors could see renewed interest in gold, pushing prices back up. So for those looking for a long-term investment, this could be a great time to start accumulating gold.
