Gold, a recent star performer for investors, seems to have run into rough times. By Wednesday, its prices had fallen for seven sessions in a row, even as West Asia erupted again in armed hostility between the US and Iran. Such a deterioration in global economic conditions ought to have given gold a lift. Yet, prices fell.
Gold owes this pain to a stronger dollar amid expectations of rate hikes by the US Federal Reserve. Since it is traded in dollars, greenback gains make non-US purchases of the metal dearer, deterring consumer demand.
Earlier, gold had soared partly as part of the global ‘dollar debasement’ trade, just as Bitcoin had, but this force may have gotten outweighed by an investor shift to US Treasury and other bonds whose yields have hardened. War clouds over the Strait of Hormuz have driven up crude oil prices as well as inflation risks.
Unsurprisingly, traders are reportedly assigning a two-thirds probability to the Fed raising its key policy rate this month. In India, Prime Minister Narendra Modi’s renewed call for people to buy less gold is part of an effort to conserve dollars. What’s hard to tell at this point is whether gold can regain its past uncertainty driven peak.