The value of gold rises and falls like any other investment. While gold will almost certainly never gain or lose its relative value as quickly as penny stocks and dot-com initial public offerings, movements in the price of gold can still convey information. Rising inflation has led several central banks to tighten monetary policy, and the United States Federal Reserve raised its benchmark one-day interest rate by 75 basis points on Wednesday. Gold is very sensitive to rising US interest rates, as they increase the opportunity cost of holding unprofitable ingots and, at the same time, boost the dollar, which is trading at which it is trading.
To learn more about how to invest in gold, you can check out our Free Gold IRA guide for more information. Do you have any confidential news? We want to hear from you. Get this in your inbox and learn more about our products and services. TD Securities expanded its short tactical position in gold on Friday, citing the increased risk of a capitulation event. Gold prices can be extremely volatile, and that means that gold is not a fully stable investment.
The higher the Federal Reserve rises, the weaker gold will weaken in the short term, said Everett Millman, a precious metals expert at Gainesville Coins. And a key index that tracks the performance of gold mining stocks fell to a more than two-year low. A recession would favor gold prices, but the sharp rise in interest rates used to deal with inflation has so far limited the rise of the precious metal. Over the past five years, the price of gold has appreciated by approximately 36%, while the total return of the S&P 500 has been 60%.
Expectations of an interest rate hike of 75 basis points on Wednesday and then another 75-basis point rise in November are weighing heavily on gold, as the World Gold Council, the gold industry's market development organization, recently opined that the commodity will face two key obstacles. When you have a diversified combination of different assets, including gold, variable returns can protect the value of your investments. The outlook for the price of gold will probably depend on how geopolitical tensions develop and how monetary tightening affects the world economy, among other factors. Some investors may choose to maintain some exposure to gold in their portfolio to diversify, as a protection against the fall in stocks and bonds.
The risks of a hard landing are high and this has only continued to drive flows into the dollar, which has been bad news for gold. When the prices of stocks, bonds and real estate fall sharply, gold can maintain its value and even appreciate when nervous investors rush to buy. The gold market narrative has been driven by the contrasting effects of persistently high inflation and rising interest rates by central banks in response.