Why Gold Prices Are Falling Despite High Inflation.

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As the greenback stayed close to a two-decade high on international markets; the yellow shining metal today dropped to nine-month lows. After falling to $1,722.36 per ounce, its lowest level since September 30, spot gold was unchanged at $1,735 an ounce.

On fears that an energy crisis could send Europe into a recession, the euro was almost at parity with the dollar.

When the dollar is strong, the precious metal priced in dollars is more expensive for buyers using other currencies.

Silver and gold prices dropped deeply as the dollar index gained momentum. The American dollar index reached new 20-year highs, which slowed the purchase of precious metals as a safe haven. Silver prices also fell to almost 2-year lows. Precious metal prices were impacted by the U.S. Federal Reserve’s aggressive interest rate hike predictions and the strengthening dollar index. The opportunity cost of owning bullion, which pays no interest, rises as interest rates rise, Market predictions that the FED may continue with aggressive rate hikes to get inflation under control have been further reinforce by the recent strong jobs data from the US.

Unlike other asset classes, gold prices have always had a link with volatility. Gold typically benefits during times of greater volatility, while other asset classes like bonds and stocks dislike it since it signals greater uncertainty regarding cash flows, dividends, and coupon payments.

-Nairametrics.

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