After Gold quotes reached the maximum of $ 2089.20 per ounce on July 8, 2020, a smooth pullback instantly began with just a sharp intensity earlier this week.
What is the reason for the fall in gold prices?
In terms of public opinion, the Gold has lost its potential as a hedging instrument at the moment. It’s happening due to the strengthening of the US dollar, which is taking place in the wake of several important factors.
The first one is once again a high risk of the second Coronavirus wave in Europe and the United States. The UK has practically already announced some new quarantine measures in the wake of COVID-19 infected people’s growth. The same thing can happen in continental Europe and then spread to America, as we’ve seen during March and May.
The second factor that supports the dollar exchange rate and thus puts pressure on gold prices is the intensification of political struggle between Republicans and Democrats on the eve of the US presidential elections. It leads to investors’ desire to sell shares of companies and stay in cash rather than buying gold, what price is noticeably higher and inadequate to the general situation. Besides, it does not generate interest income, as for example, government bonds or dividend stocks of companies do.
In addition to these reasons, there are some more not so significant, but still meaningful factors. For example, a drop in demand for general & common metals, including Gold, is due to an apparent slowdown in the global economy’s recovery process.
In public opinion, a decrease in tension around the COVID-19 pandemic against the background of the real creation of a vaccine, the end of the election process in America and the first signals of a resumption of global economic growth will stop the dollar’s rise and the Gold prices will be contantly droping down.
What shall we expect soon?
I personally believe that the downfall of the Gold prices will continue in the nearest future.
The continuing sell-off in the stock markets will contribute to the investor’s cash withdrawal, which will again stimulate the growth of the dollar, hence that it will put high pressure on gold quotes.