Have you wondered why the gold market has been so sluggish lately?
And by lately, I mean since August 2020.
In fact, we have seen the precious metal move in a tight range between a high of $2,080 down to low of $1,626.
That’s it. For three long years, it’s been moving in a range of 454 dollars.
If you bought (went long) or sold (went short), you would have made a loss today (considering the fees and costs).
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Let’s consider the reasons for gold’s lack lustre performance in the past three years…
It could be the devastating impact Covid-19 had on the world – and investors just want to hold cash.
Or investors and people in general might have lost so much, that they just can’t afford to invest in precious metals any longer.
It could be the new markets that are infiltrating and disrupting the world prices – like ETFs, REITs, crypto, coins and blockchain.
It could be the market algorithms that are preventing any strong up moves within the markets.
Whatever it is, we need to take into account the possibility that gold might continue this sideways movement for the next couple of years.
Why I think this bearish sentiment towards gold is likely to continue
Here’s my reasoning…
#1: The Dixie has surged to a 11-month high
I believe gold prices have been pressured lately, due to a combination of risk-off sentiment in the markets and a stronger US Dollar (USD).
We need to remember.
There is a negative correlation between the US dollar and gold prices.
A stronger US dollar makes gold more expensive for foreign buyers.
And this reduces the demand for the precious metal, which causes the price to drop.
The fact that the Dixie (US Dollar Index) has surged to an 11-month high, is one of the reasons why the gold price has dropped.
#2: US Treasury yields are killing it!
One of the reasons for the run on the US dollar is what’s going on with the US Treasuries.
In fact, the 10-year US treasury yield has reached levels of 4.81%.
These are levels, we’ve not seen since 2007.
And we need to remember that gold is a non-interest-bearing asset.
This means, it does not generate interest or yield like bonds or other low risk investments.
So, when Treasury yields rise, it becomes more attractive for investors to move their money from gold into interest-bearing assets.
And hence, we’ve seen investors move their money into higher US treasury yields instead.
#3: Better job data
I mentioned in the previous gold article, that we’ve seen strong employment data come out recently.
This data signifies a healthy and growing economy.
And so, when news like this comes out, investors often opt for riskier assets
and equities which show more promising returns.
I think these are key reasons as to why there has been a shift in investor interest, and consequently a lack of demand and upside for gold.