A surging US dollar and rising interest rates sent the price of gold tumbling to its lowest level since February, hurting the shares of miners and spurring hefty liquidations of exchange traded funds that track the metal. Although typically a haven in times of turmoil, gold provides no yield for investors, which makes it a less attractive investment compared with other assets that offer income streams when interest rates increase.
Mid December to Mid January
Gold bears have been making big bets that a Trump administration will lead to strong US economic expansion, higher interest rates and a stronger dollar. Higher interest rates boosts the value of the dollar and makes gold less attractive as an investment because the metal is not yield-producing and investors have to rely on price appreciation for returns.
But rising uncertainty about the impact of the president-elect’s fiscal stimulus plans has seen the dollar take a beating from mid December and US stock markets retreat from their highs. Gold recently surged to a seven week-high, above $1,200 an ounce, on the back of the dollar weakness, which fell after Trump’s long-awaited news conference disappointed analysts as he failed to provide any clarity on his economic plans.