Before 2020, gold was a very popular and widely traded asset. It was considered a good investment because of its high price and demand. The largest buyer country was always Turkey. Then were Russia, China, and Poland. In 2019, the summed amount of purchased gold was more than 650 tons. A similar result was in 2018 too.
Before the pandemic, the gold market was quite stable with its high level of demand and affordable prices. It was considered a good investment. Gold was featured with a stable value for long-term and short-term frequent volatility. Even through the inflation and economic crisis, the gold market maintained its value and because of high demand was a considerable investment.
But in 2022, the price of gold significantly dropped. The price is the lowest since spring 2020 and is reduced by 1.5%. Ukraine war and pandemic do not have a direct impact on gold price reduction. The main reason is the decreasing price of USD.
Down below will be outlined the main reasons and specifics for the gold price reduction, which will give you a clear picture of the probable volatility of gold investing.
Why Is Gold Not As Expensive As It Should Be?
Gold is dollar-dominated. This means that the gold price is dependent on the USD price. As you know, the USD value has been significantly reduced since May 2022. This price drop is caused by several factors. The first is the changing monetary policy of the Fed. When the USA Central Bank decreases interest rates to encourage investors, it causes a quantitative reduction of the currency.
It happened in the spring of 2022 but the interest rates increased three times till September. So, from May till today, the US Dollar index historically increased and equaled 110.51 points which is the highest result, since 2002.
Another reason is high inflation. It is a global problem today caused by war and pandemics. Because the prices on the trade market increase with the demand for currencies, problems occur in supply. This causes trouble with export prices which are under massive sanctions currently.
There is no trading market left, which does not feature high fluctuations. The gold market is not an exception. The increased rate of recession directly had an impact on gold prices. The same happens with other metal prices such as silver or platinum.
So today, gold and silver prices are under high pressure from mentioned factors and have high volatility in domestic and international markets. More specifically, recently, the gold price dropped by 1.5%, whereas the silver price reduced by 4% since spring.
The Current Situation On The Gold Market
The main statistics of the gold market are featured with price reductions. There is a quite significant difference between price support and resistance. This trend is the same for both spot gold and the US gold market where prices are decreased by 1% and 0.5%. More specifically, spot gold is reduced to 1 657 USD per ounce whereas US gold fell to 1 667 USD.
Both gold and silver markets currently have high volatility as well as purchasing rates from investors. According to market experts, this is mostly caused by the Ukraine war because investing in gold remains an option for making safe funds.
Currently, the difference between gold resistance and support prices is slight. More specifically, support is about 1 647 USD whereas the resistance price is at 1 670 USD. The same is with silver prices, where support is from 19.05 USD and the resistance price is from 19.42 USD.
A similar result is from HDFC Securities where prices are reduced by 0.87%. For example, the support is at 1 640 USD with COMEX Spot Gold whereas the resistance is 1 676 USD.
This is a big change after spring statistics which is the direct result of Fed politics. As the head of the commodity strategy at Saxo Bank said, every kind of metal market will remain under high pressure till the hawkishness will be at its peak. Such a high change of interest rate from the Federal Reserve can change the current picture importantly till the end of the year.
If this fluctuation continues, the pressure will increase on palladium and silver prices too. Recently spot silver reduced by 4% whereas palladium decreased by 4.8% which is about 858.81 USD.
To conclude with the 2022 predictions, experts claim that the unclear picture of gold prices will be maintained. This will be caused by two central factors: geopolitical issues which are very problematic because of the current war and monetary policy which is quite unpredictable after last month’s regulations. The Fed changes interest rates very frequently and the currency prices are unusually low. But still, with the high volatility, the gold market is still popular for investment.