While the equity market was doing rather well, the precious-metal market sunk today. Indeed, gold price was down following the acquisition of SVB. Strong profit-taking pressure and weak long liquidation from the futures traders were featured in both metals to start the trading week. The loss ranged from 0.7% for both platinum and palladium to 1.5% for gold. After three consecutive gains, gold for April delivery ended lower for a second session, dropping $30 to settle at $1,953.08 an ounce on the Comex division of the New York Mercantile Exchange.
Gold, the most valuable form of medium of exchange, is currently encountering difficult times. Moreover, the reason why gold has been used as the main commodity was its ability to counter inflation. The price of gold is generally inversely related to the value of the U.S Dollar because the metal is dollar-denominated. A stronger dollar tends to keep the price of gold lower and more controlled, while a weaker U.S. dollar is likely to drive the price of gold higher through an increase. This is why gold is considered a secured hedge against inflation.
sources: Bullion Vault
Gold price has been sinking and one of the reasons why gold price may experience in fall in value is when there is an excess of supply relative to demand and shifts in investor sentiment. Interest rates are currently high, and high-interest rates hurt the price of gold. Investors are currently selling their position since the value of their investments has dropped due to the increase in these rates. An increase in interest rates also increases the value of the dollar, which makes cash more attractive to investors. Let us not forget that gold is an asset like stocks, bonds, real estate…etc. High-interest rates depreciate the value of investments. Thus, when rates are high, investors would rather invest in cash than other types of assets. It, therefore, makes sense why the price of gold declined. Moreover, inflation is declining as well, which subsequently increases the value of the dollar.
U.S. and European baking systems appear to have stabilized for the moment. First Citizens Bank has agreed to buy SVB. This temporary stabilization of the banking system increased investors’ confidence in the dollar, and as the result, the price of gold slumped.