Gold price sinks to post-pandemic low. What’s going on?

A woman holds a gold bar in one hand and puts her other hand to her forehead with an apprehensive and concerned expression on her face after watching the Ramelius share price fall todayA woman holds a gold bar in one hand and puts her other hand to her forehead with an apprehensive and concerned expression on her face after watching the Ramelius share price fall today

Gold continues its downward spiral and now trades at 12-month lows. The yellow metal has catapulted down from a previous high of US$2,052 per troy ounce and now rests at US$1,692/t.oz.

Meanwhile, economic data continues to defy the last few decades of readings.

US and UK inflation is now over 9% year on year, whereas the risk of recession increasingly grows by the week.

Traditionally, these have been bullish drivers for the gold price, but these relationships have fallen apart at the seams in 2022.

What’s going on?

In order to curb the hot-running global inflation, central banks have embarked on aggressive monetary tightening regimes.

This has dented global demand for gold bullion, Trading Economics says. It notes the metal’s underperformance “indicated technical weakness” despite other headwinds receding.

“[This] could be attributed to expectations that other major central banks will catch up to the Fed’s tightening path,” it said.

Gold is traditionally seen as a hedge against inflation. However, rising interest rates mean investors weigh up the opportunity cost of holding gold bullion/futures, as neither pay any interest.

Meanwhile, the US dollar index (DXY) continues to defy the odds and has surged to its highest value in 5-years.

As seen below, gold has diverged away from the DXY from May, and the ‘crocodile jaws’ continue to widen at the time of writing.

TradingView Chart

“The US dollar held below two-decade highs against its rivals, making greenback-priced bullion more expensive for buyers holding other currencies,” Reuters reported.

Not only that, but European Union diplomats met on Wednesday to discuss a new round of sanctions against Russia, including banning gold imports from the country.

Alas, the gold price continues in a sharp downtrend that has yet to find a bottom. ASX gold miners have felt the pinch today as well, with the Vaneck Gold Miners ETF (ASX: GDX) down almost 3%.

The post Gold price sinks to post-pandemic low. What’s going on? appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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