WHY DID THE GOLD FALL BELOW THE PANDEMIC LEVELS

When you look at the gold price Melbourne market, you see the selling price for a one-ounce mint gold bar going for $2,584.93 with a buyback price of $2,407, 12. As of 4 August, it fell to post-pandemic lows. The saying is that gold is a hedge against inflation’s falling value. But why is this happening even with the inflation rising?

So far, we saw the gold rise in 2022 from 1,832 dollars an ounce at the start of the year to 1,600 dollars an ounce. Therefore, while it should be a traditional inflation hedge, as the interest rates rise, it should outperform most other assets when rising prices.

In Australia, inflation is running at an annual rate of 6.1%. People hold gold as an effective hedge because it has a static supply that cannot be printed. Then why is gold climbing and falling so fast? Well, the most straightforward explanation is to explain gold as an inflation hedge.

When you look at the recent articles published by CNBC, they blame the gold price falling on the aggressive interest rate hikes. The report stated that the rise of the US interest rate will help reduce the non-yielding gold appeal even though it is a hedge against inflation.

Hence, it shows that it is another way to protect your wealth when it comes to inflation to receive a return on your capital. Therefore, the income can be in the form of stock dividends, loans and bonds interest or even rent from real estate.

Yet, when you look at gold bars, they do not provide you with income streams. So, while it is considered an inflation hedge, it still gives you no return. Thus, it makes it unattractive to hold when the interest rate keeps rising in the short term.

Therefore, investors prefer a return on the aggressive asset of gold. However, in 2021 gold continued to descend from highs resulting from macro catalysts and the US dollar with interest rates rising. So, while the gold is a bit up, for now, it keeps continuing in down movement.

But what is causing this to happen? First, central banks aggressively tightened the monetary regimes to prevent rampant global inflation. Thus, it hurt the global demand for precious metals. With the rising interest rates, investors hold back gold/futures if they are not paying interest.

Then you have the US dollar index defying the odds and rising to a five-year high while the gold diverged from the dollar index. So what now when you look at the gold price Melbourne market? Should you still invest your money in buying gold?

Well, when you look at all the sell-off across all the stock market losing ground. Now is a good time to invest in gold bullion to make it part of your expanded portfolio. One of the best ways of doing this is to buy gold by investing the gold in a super fund.

For this reason, before the spot price of gold goes to a high. So you can buy gold now at a lower price before it reaches that high, as predicted by Evolution’s Klein, saying the price gains going higher for longer.