Gold is falling again with the price now languishing at levels last seen in March 2020 after a series of Federal Reserve officials reiterated the need to keep raising interest rates to try and bring inflation under control.
The Fed’s hawkish policy of raising interest rates has had a doubly negative impact on gold as not only has it made the non-yield bearing asset less attractive, it has also helped strengthen the US dollar to record levels, which given gold’s typically inverse correlation with the greenback has exacerbated its decline.
In the current environment it is hard to see where gold can gain a foothold to stave off further declines. One possible source is the ongoing war between Russia and Ukraine with Russia showing ever more desperate attempts to wrestle back the initiative, including potentially sabotaging its own Nordstream pipelines to cause the maximum gas disruption to Europe.
If this is confirmed as a Russian act, it would demonstrate the level the government is willing to sink to, increasing the possibility of nuclear weapons being used. In this scenario, gold would be one of the few beneficiaries, with the precious metal viewed as the ultimate safe haven that has endured through centuries of conflicts.
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