With the world markets in turmoil typically gold rallies in times on uncertainty. I know the dollar has strengthened but I would have expected the flow out of the world markets would have offset the strength of the US dollar. Any ideas, is there anybody out there that is in the precious metals commodity markets?
Perhaps the gold price is falling due to deflation. The money supply in the economy is decreasing because banks are hoarding their cash. And the US government is absorbing a lot of cash from investors by selling them a lot of US Treasury bonds and giving their cash to the banks.
In deflation, all asset prices fall. And gold is no different in this regard because it’s no longer used as money by any country. Gold is not pegged to any currency now the way it used to be pegged to various currencies in 1930’s.
3 Responses to “Why is gold dropping in price?”
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The dollar is gong up. In times of turmoil the dollar and dollar denominated assets like treasuries go up. Its referred to as a flight to safety. And since gold and all other commodities are traded in dollars they go down when the dollar goes up.
References :
http://charts3.barchart.com/chart.asp?sym=DXY0&data=A&jav=adv&vol=Y&divd=Y&evnt=adv&grid=Y&code=BSTK&org=stk&fix=
Perhaps the gold price is falling due to deflation. The money supply in the economy is decreasing because banks are hoarding their cash. And the US government is absorbing a lot of cash from investors by selling them a lot of US Treasury bonds and giving their cash to the banks.
In deflation, all asset prices fall. And gold is no different in this regard because it’s no longer used as money by any country. Gold is not pegged to any currency now the way it used to be pegged to various currencies in 1930’s.
References :
Gold rallies on inflation expectations more than uncertainty. We are in recession.
References :