Gold prices last week recorded their biggest drop in six months, losing as much as four percent in value, the biggest weekly loss since November.
An ounce of gold (31.1 grams) is now almost ten percent below its record high in April, when it exceeded $3,500.
The reasons for such a strong correction in precious metal prices lie in several parallel factors, including: a decrease in global geopolitical tensions, including a trade truce between the US and China; the strengthening of the US dollar, which reduces the attractiveness of gold as an alternative form of value preservation; an increase in risk appetite, as investors are encouraged by announcements of economic recovery and the easing of trade barriers; profit-taking – investors have decided to cash in on profits after the extraordinary growth of gold since the beginning of the year, which still amounts to an impressive +22 percent and, additionally, with optimism in the markets, interest in so-called safe havens like gold is naturally declining.
At the same time that gold is recording losses, stock market indices are growing strongly. The agreement between the US and China to temporarily lift tariffs for 90 days has sparked a wave of enthusiasm among investors.
The tech index NASDAQ rose by seven percent last week, while the S&P 500 rose for five consecutive days. The positive developments were further fueled by expectations that a recession would be avoided – even Barclays, which until recently predicted a decline in US GDP, now expects it to grow by 0.5 percent. In contrast, Moody’s has downgraded the US credit rating to AA1, due to the worrying level of public debt.
Although the market is currently dominated by euphoria, there are also signals for caution. The University of Michigan’s consumer confidence index showed a further decline, while inflation expectations for the next 12 months rose to as much as 7.3 percent – the highest level since 1981. Meanwhile, some companies like Walmart are warning of possible price increases due to Trump’s tariffs, while others – like First Solar – are seeing strong growth thanks to tax breaks for renewable energy sources.
In short, the market is in a transitional moment: optimism is pushing stocks higher, while gold – a symbol of caution – is temporarily giving way to euphoria.
However, as trade negotiations and geopolitical tensions develop, the balance could quickly shift, reports Bankar.me.
