A 5% weekly drop in gold prices is a notable indicator, especially considering that it was the sharpest in three years. Several factors contributed to the price decline, each of which has a strong impact on the precious metals market.
First, it is worth noting the strengthening of the US dollar. When the dollar is gaining strength, investors usually turn their attention to other assets, especially if there is an expectation of an increase in the yield on dollar instruments. Gold, as a rule, demonstrates an inverse correlation with the dollar: when the dollar rises in price, gold becomes more expensive for holders of other currencies, which leads to a decrease in its demand and, accordingly, its value.
In addition, investor expectations were influenced by US economic policy and the outlook for inflation. Investors assume that in the context of increased inflation and the likely continuation of high interest rates by the Federal Reserve, gold will be less attractive as a means of protecting capital. In this scenario, gold's attractiveness decreases, since the yield on dollar assets looks more favorable.
It is also worth considering the impact of Trump's policies. If his economic moves prolong the period of high interest rates and at the same time increase inflation, this could reduce demand for gold as a safe haven asset, forcing investors to focus on short-term yields on bonds and other dollar assets.
However, I would not take the current decline in gold prices as a sign of a long-term decline. Gold remains a key safe haven asset, and its price can quickly recover when the economic situation changes. In the context of possible geopolitical instability or economic uncertainty, gold may again become attractive to investors, including central banks. For long-term investors, the current situation may even create a profitable entry point.
Overall, the current decline in gold prices highlights the importance of flexibility and diversity in investment portfolios.
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