Last Thursday, the price of gold ounce dropped to a three-month low, reaching $1915. This decline is attributed to the decisions made by central banks to increase their interest rates, as well as the slight rebound of the dollar and bond yields.
Central banks such as the Bank of England, Norges Bank, the Swiss National Bank, and the Central Bank of Turkey all decided to raise their interest rates. The Bank of England increased rates by 50 basis points, reaching 5.00%. These decisions had a negative impact on the price of gold, causing it to lose its appeal as a safe-haven asset.
Additionally, the US dollar and bond yields experienced a rebound following statements by Michelle Bowman, a governor at the Federal Reserve and voting member of the Federal Open Market Committee (FOMC). Bowman emphasized the need for further rate hikes to combat inflation, which boosted investor confidence in the US dollar and American bonds.
the price of gold is closely monitored by investors
In the current environment of economic uncertainty and rising inflation, gold is often seen as a safe-haven asset during financial instability due to its tangible nature and ability to retain value. However, the relationship between gold prices and inflation is not always clear.
According to the latest report from the World Gold Council, global gold demand only increased by 1% in the first three months of this year compared to the same period last year. Central banks were the main drivers of this demand, increasing their reserves by 228 tons, a record for the first quarter. However, demand for bars and coins only rose by 5%, with significant variations across different markets.
In the United States, gold demand reached its highest quarterly level since 2010, primarily due to concerns about inflation and the need for security during times of banking crises. On the other hand, in Europe, particularly in Germany, gold demand declined due to positive real interest rates and an increase in the price of gold in euros, prompting some investors to take profits.
Historically, gold has provided long-term protection against currency devaluation. The limited supply of gold is the main factor driving long-term price increases, enabling gold to maintain its purchasing power.