On Friday last week, (13/5) at 06:36, gold prices experienced a significant decline worldwide. This decline occurred after the price of gold had reached its peak on Tuesday (8/3) at US$ 2052.4 per troy ounce. Currently, the price of gold is pegged at US$ 1,818.93 per troy ounce, down 0.15% from the previous day's price of US$ 1,850.6 per troy ounce.
This price change was the result of a 3.4% price correction that occurred a week earlier on Friday (6/5), where the gold price was at US$ 1882.9. Moreover, the evidence of gold prices decreasing appeared more prominent when compared to the price on Friday (13/5) with the price a month earlier on Tuesday (12/4), which was US$ 19666.5. On Wednesday (13/4), the price of gold was still around US$ 1977.7, 7.8% higher than the price on Friday (13/5). Until this day, the gold price in May still remains on a flat line in the same range and has not shown any signs of recovering.
Good Returns considers the main reason behind the constant decline in gold prices is somehow related to the United States Dollar’s value increase. This occurs as the effect of the Federal Reserve's benchmark rise of interest rate. The main factor that caused the United States Dollar to skyrocket is the market expectation of a 50 basis points interest rate hike in June. High market expectations for an increase in interest rates are caused by the high inflation rate in April 2022 which reached 8.3%, which is far from the normal rate of 2%.
Quoted from Reuters, Bart Melek stated that the Federal Reserve shows concern on the possibility of more aggressive increase of interest rates on the United States Dollar which could continue to lower gold prices. The same issue was also expressed by Edward Moya from Oanda, where he explicitly stated that the strengthening of the United States Dollar made gold in the danger zone. It is feared that the price of gold will continue to decline to reach the range of US$ 1,750 if the price cannot penetrate the US$ 1,800 mark in the future.
Even though the price of gold has not yet shown progress, the price of gold still has the potential to rise if global economic conditions weaken. Reporting from CNBC, Ravindra Rao from Kotak Securities stated that gold will remain the safest asset of choice for people when economic conditions deteriorate. He also stated that the price of gold is unlikely to rise sharply unless the United States Dollar weakens drastically, like what happened in January 2022.
Reporting from Kompas.com, at the end of January 2022 the price of gold had increased due to geopolitical conditions, when the conflict between Russia and Ukraine had just begun. At that moment, these geopolitical conditions caused the Federal Reserve not to raise its benchmark interest rate which caused the value of the United States Dollar to decline. This can increase public interest in investing in gold and lift positive sentiment towards precious metals, especially gold.
