The price of gold fell for a third week in a row and on Friday dipped again briefly below the much-touted $1,800 per troy ounce mark to a five-month low of $1,784, according to Handelsblatt. Later in the day, the shiny metal once again climbed above the $1810 mark.
Experts believe that the price of gold will continue to come under pressure for several reasons. In their view, rising interest rates and especially the strong US dollar are driving gold’s role as a crisis and inflation-hedging currency to recede into the background.
The strongest factor affecting the price today is the rise in capital market interest rates, says Christopher Louney, strategist at Canadian investment bank RBC Capital Markets. Rising interest rates are problematic for gold because they make the precious metal, which does not produce current income, less attractive.
US bond house Pimco’s chief economist, Joachim Fels, also pointed out in an interview with Handelsblatt that the prospect of rising real yields – that is, nominal interest rates minus inflation – usually slows the price of gold.
The US dollar, which has gained significant ground against major currencies such as the euro since the start of the year in the wake of the interest rate shift, also makes dollar-denominated gold more expensive for international investors.
A dollar has appreciated by 8% against the euro since the beginning of the year. One euro recently cost just over $1.04, while at the beginning of January its price was just under $1.14.
Gold is caught between acting as a safe haven in crises and against inflation, as well as the shift in interest rates, Louney sums up. Over the past three months, the price of 31.1 grams of gold has fallen by six percent and since the beginning of the year by 1.3 percent overall.
Import duties on gold in India are an additional burden
In addition, import duties on gold in India, the world’s second largest market, could dampen demand. To narrow the trade deficit, the Indian government has raised import duties on gold from 7.5% to 12.5%.
Gold dealers in the country are apparently already reacting with price cuts to relatively weak demand just ahead of the third quarter, when much gold is traditionally bought in India due to the numerous holidays and holidays.