Gold prices plunged significantly, losing more than $220 from its all-time high recorded last month.
With gold futures contracts declining by 0.2% to $2567.10, the market is facing increasing pressure due to the strength of the US dollar, amid growing expectations of smaller US interest rate cuts, according to Reuters.
Sharp decline in gold prices
At the beginning of the week, gold prices fell significantly, with spot gold contracts dropping to $2562.61 per ounce, marking a decline of more than 4% since the beginning of the week. This decline reflects the impact of several factors, most notably the strength of the US dollar, which has made gold more expensive for holders of other currencies.
Impact of the dollar’s strength on gold
Analysts indicate that the strength of the US dollar was the main factor behind the decline in gold prices. When the dollar rises, as reported by Reuters, gold becomes more expensive for investors using other currencies, leading to a decrease in demand for the yellow metal.
Expectations regarding US monetary policy
Expectations of smaller US interest rate cuts have increased after Federal Reserve Chairman Jerome Powell indicated that there is no need to rush to cut rates. Amidst this scenario, higher interest rates have become a greater cost for holding gold, which does not generate returns, contributing to a decline in its prices.
Outflows from gold funds
Gold-backed exchange-traded funds have seen significant outflows this month, reflecting a decline in interest in gold among some investors. In the first week of November, gold funds lost approximately $809 million (equivalent to 12 tons), reflecting the unwinding of previous hedges against the US elections.
Long-term supporting factors for gold prices
Despite these short-term pressures, the World Gold Council report indicates that the current correction may not turn into a sharp decline in the long term. There is underlying support for gold in the market due to geopolitical concerns and the expected inflationary policies of the US government, which could lead to increased demand for the yellow metal as a safe haven.
Future outlook for gold
Given the current economic climate, gold remains a focal point for many investors seeking a hedge against inflation and economic risks. Despite the recent correction in its prices, forecasts suggest that demand for gold may continue to grow in the long term, especially in light of the many risks associated with global economic policies.
Reasons for gold’s performance
The significant decline in gold prices this week is primarily due to the rise of the US dollar, driven by expectations of smaller interest rate cuts by the US Federal Reserve. These expectations make gold less attractive as a safe haven compared to other assets, as higher interest rates make non-yielding gold less appealing to investors.
Additionally, positive economic data, such as the unexpected surge in US retail sales, is supporting the rise in yields on US Treasury bonds. This is strengthening the dollar and increasing the cost of gold for holders of other currencies.
Furthermore, US President Donald Trump’s plans of increasing tariffs suggest the potential for higher inflation, which could hinder future monetary easing policies and increase the likelihood of gold price volatility in the long term, according to experts in the Reuters economic report.
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