The price of gold has fluctuated wildly in recent days.
After a year of skyrocketing value, the yellow metal hit a record high of $5,500 an ounce last week.
However, the price of gold fell more than 9% on Friday, the most in a single day since 1983, and then fell even further on Monday.
It increased by almost 5% on Tuesday after a minor rebound, and that increase persisted into Wednesday.
Its price is still over 75% greater than it was at the same time last year, even with the recent declines.
What’s happening, then?
What caused the most recent drops?
Although there are many reasons why financial markets fluctuate, observers generally concur that US President Donald Trump’s choice to appoint Kevin Warsh as the chairman of the Federal Reserve, the country’s central bank, was crucial in this instance.
In light of recent concerns about the Fed’s independence, April Larusse of Insight Investment told the BBC that the markets consider Warsh to be a “very acceptable” pick.
This increased the dollar’s worth and eased investor anxiety. The price of gold, which is thought to be a safer investment during uncertain times, did not fare well with this relaxation of worries.
Changes to a major exchange’s trading regulations that increased the cost of trading for speculators were another explanation given for the price decline.
Since the beginning of the year, gold and silver prices have skyrocketed, and some analysts have started to believe that the increases are excessive.
“Simply because they had already gone parabolic in the previous week” is one reason for the price decline, according to Mark Matthews, head of research for Asia at Bank Julius Baer, who spoke to Reuters.Profit-taking merely grew more widespread after it began.
Some, however, thought the dips were merely a temporary setback in the upward trend of gold. According to Deutsche Bank analyst Michael Hsueh, “conditions do not appear primed for a sustained reversal in gold prices” and the bank’s expectation that gold will hit $6,000 per ounce was reaffirmed.
Why was gold on the rise?
Over the past few years, the price of gold has been gradually increasing, but last year it saw its largest annual gain since 1979.
Because it offers a more secure asset during difficult times, precious metal is regarded as the best “safe haven” investment.As opposed to bonds or stocks, where a company’s performance determines performance, gold is not linked to another person’s debt, Nicholas Frappell, global head of institutional markets at ABC Refinery, told the BBC.In a world full of uncertainty, it’s a great diversifier.
The Trump administration’s erratic revisions to US trade policy were the main source of concern for investors last year. Trump’s April announcement of “Liberation Day” duties caused months of confusion while talks over the levies’ exact level persisted.
Gold and silver hit new all-time highs in January after Trump threatened to slap new tariffs on eight European nations that resisted his since-retracted takeover plan for Greenland.
Emma Wall, chief financial strategist at Hargreaves Lansdown, said that investors are still concerned about his trade policy, which is supporting the price of gold.
The US’s capture of Venezuelan President Nicolás Maduro in early January contributed to the rise in the price of gold, and geopolitical uncertainties have further increased the allure of gold as a safer investment.”Amid growing trade tensions, geopolitical flare-ups, and political uncertainty in the US, gold is doing what it does best—jumping,” Wall adds.Gold’s attraction has increased due to recent tensions between the US, Canada, and China, anxiety surrounding Europe and the Middle East, and even the possibility of a shutdown in Washington.
Central bank purchases
Prior to last year’s spike, central banks’ increased purchases of bullion were one factor driving up the price of gold.
After the Russian Central Bank’s reserves were frozen in the wake of the invasion of Ukraine, this has been the pattern for the past few years.According to Wall, gold has been preferred by investors and international central banks as their preferred reserve currency because they feel it protects them from reliance on US policy.Some countries will have seen the risk that international players backing Ukraine might take Russia’s US currency holdings and thought the gold would make a more alluring neutral reserve,” she continued.
Other gold purchasers include China, which is thought to be the largest buyer of gold. The central bank, investors, and jewellery buyers in China are the main sources of demand.
Investors in the west have also been attracted to gold, with many placing money into funds that own and trade the metal.
