While more modest in comparison to these movements, the recent new lows reached by gold reflect a renewed expectation for higher real interest rates as the Fed starts to raise rates. Those higher rates increase the “opportunity” cost of holding gold and weigh negatively on its price.
Recent declines in gold serve to validate the return of fundamentals to the outlook for financial markets following the “risk off” episodes of Greece and China. And while certainly a lower systemic risk environment negatively impacts the safe haven aspects of gold, its luster is further diminished in a world of normalizing interest rates.
Jeffrey Rosenberg is BlackRock’s Chief Investment Strategist for Fixed Income and a regular contributor to The Blog.