Gold and related exchange traded funds slid for the fifth consecutive month, marking their worst losing streak in four years after the Federal Reserve signaled it will do whatever it takes to contain record-high inflationary pressures.
The SPDR Gold Shares (GLD) dropped 2.2% over the past month and declined 6.1% year-to-date. Meanwhile, Comex gold futures are now trading around $1,722.1 per ounce.
Gold prices continued to retreat Wednesday, extending losses after Fed Chair Jerome Powell reaffirmed the central bank’s commitment to raising interest rates to fight off inflationary pressures, even at the expense of economic growth.
Adam Koos, president of Libertas Wealth Management Group, told MarketWatch that in a “tug of war” between precious metals against higher interest rates and a strong U.S. dollar, the metals are in a losing battle.
“Until we start to see rates ease, the dollar fall, and a ‘real’ recession poke its head above the surface, I think we’ll continue to see lower metals prices,” Koos told MarketWatch.
So far, the U.S. dollar continues to hover around record highs on bets of further interest rate hikes or monetary policy tightening, which would reduce the supply of dollars circulating in the financial system.
Meanwhile, the higher rates make non-yielding assets, like gold, less attractive to new government bond issues.
“The catalyst for gold’s reversal in fortunes was the switch in policy by the Federal Reserve to a more hawkish monetary policy in April that has resulted in a series of interest rate hikes in recent months as well as a reduction of the amount of the debt it holds,” Rupert Rowling, a market analyst for Kinesis Money, told MarketWatch.
Gold experienced a sharp reversal of fortunes in 2022 after surging toward record highs during the height of the risk-off selling in the wake of Russia’s invasion of Ukraine.
“These metals have been on the struggle bus since early March, and when the weak hands start to hit the sell button across the board, if one holds up, it’s going to be the camp that has its own church,” Koos said.
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