Gold Takes a Tumble as Dollar Strengthens
The value of gold has plummeted to its lowest point in over seven weeks, largely due to the strengthening of the US dollar following Donald Trump’s election victory. This significant decline marks a 5.5% drop in gold prices since the election, with bullion falling as much as 1.1% in a single session.
Dollar’s Rise Spells Trouble for Gold
A key factor contributing to gold’s decline is the rising value of the dollar, which makes commodities priced in the currency more expensive for most buyers. This surge in the dollar is attributed to Trump’s promises to cut taxes and impose trade tariffs, making investors wary of gold’s value.
Hedge Funds and ETFs Abandon Ship
As a result, hedge funds have been unwinding their bullish bets on gold, while exchange-traded fund flows have become less supportive. This exodus from gold investments has led to a widespread rotation into US equities, further exacerbating the precious metal’s decline.
Technical Factors at Play
According to Chris Weston, Head of Research at Pepperstone Group Ltd., the sell-down is also partly technical, driven by a break below the 50-day moving average. This led funds to cover long positions, further contributing to gold’s decline.
Gold Still Up for the Year
Despite this recent downturn, gold remains up over 25% for the year, thanks to the Federal Reserve’s easing cycle, central bank purchases, and heightened geopolitical and economic risks that drove haven demand.
Eyes on Core Consumer Price Index Report
Investors will be closely watching Wednesday’s core consumer price index report, which excludes food and energy, for clues on the Fed’s next steps. Many economists believe the inflationary impact of Trump’s policies will lead to fewer rate cuts than previously expected, which could have significant implications for gold prices.
Spot Gold Falls
As of 10:13 a.m. in London, spot gold declined 0.9% to $2,595.79 an ounce, approximately 7% below the record high reached last month. The Bloomberg Dollar Spot Index rallied for a third consecutive day, while silver, palladium, and platinum also fell.
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