3 Key Reasons Why Gold’s Price Has Suddenly Plunged
September 23, 2020 @ 20:16 +03:00
Gold’s Outperformance of Stocks Could Be Ending
Over the past year, gold prices have surged nearly 25%. That’s on top of gains the metal has shown since 2016. In the same period, stocks have dealt with a swift and massive bear market. Stocks are now up only 10% in the past year, meaning gold has been a strong outperformer. That performance was driven by several factors that may now work against gold. During the market selloff, gold held up much better, as investors took money out of stocks and put it into bullion. The metal’s price got a boost as new Fed stimulus during the market crash pushed the U.S. dollar lower.
Dollar’s Move Will Impact All Asset Classes
Not only has the dollar moved higher, but it’s also now at a two-month high. It has broken its 50-day moving average, a technical signal that its recent move will continue. All assets priced in dollars–from gold and oil to stocks–can be impacted. A stronger dollar makes U.S. goods more expensive abroad, which could weigh on corporate earnings. So, it’s no surprise to say that the dollar trend is a lot more than just gold.
As for the yellow metal, part of its move has been based on rising inflation expectations. That made sense as the economy was in a rapid recovery mode earlier in the year, but now the latest economic information shows that the economy is starting to stall. That may explain why some funds began to take profits in gold.
Finally, stock markets have shaken off fears of another major decline. Gold tends to hold up well during periods of fear, and even with all the central-bank activity, which should put a price under the metal, that just isn’t happening. Between a stronger dollar, lower inflation expectations from a flatlining economy, and a drop in market fear, it’s been a perfect storm for gold prices to decline. It won’t last forever, but it will likely continue.
3 Key Reasons Why Gold’s Price Has Suddenly Plunged, CCN, Sep 23