Are the good times over for gold?

This could be the year that marks the first decline in the gold price in 13 years.

Gold has fallen back from its three-month high of around $1,400 an ounce, with hopes that military action in Syria could be averted causing the latest price drop. But other factors influencing gold also point to a subdued performance over the next few months, reckons Fxpro.com's Simon Smith.

For starters, real interest rates have been rising globally over the past six months. Investors will be more reluctant to hold gold, which pays no interest, if they can get a real return on other assets. Higher interest rates are also a sign of a gradual return to economic normality, which is not good news for an asset that thrives in bad times.

There is another headwind for gold: dwindling inflation. Inflation in the OECD area as a whole is at a four-and-a-half-year low.

Meanwhile, solid emerging-market demand for gold 50% of consumer demand stems from China and India looks set to be undermined by the slide in the Indian rupee, making gold more expensive to consumers.

All told, says Smith, gold could see its first down year in 13 years. But we'd still hold on to the yellow metal. We'd be surprised if we've really heard the last of inflation, and given the scope for instability as interest rates normalise or the euro crisis returns, holding some gold as portfolio insurance could well prove a canny move.

Recommended

Gold will soon regain its shine
Gold

Gold will soon regain its shine

With the gold price down by 9.5% in the first quarter of 2021, it has been a rotten start to the year for gold.
9 Apr 2021
Why gold has been such a bad investment so far this year
Gold

Why gold has been such a bad investment so far this year

Gold – the ultimate safe haven investment – is proving anything but safe. It’s lost over $200 an ounce since its high at the start of the year. Domini…
3 Mar 2021
Gold will soon regain its lustre
Gold

Gold will soon regain its lustre

Despite roaring commodity prices and central bankers stoking inflation, gold is being left behind. But that won't last.
26 Feb 2021
Gold has had a tough start to 2021, but we’ve been here before
Gold

Gold has had a tough start to 2021, but we’ve been here before

Gold has had a disappointing start to the year – in an increasingly digital world, it’s the ultimate analogue asset. Nevertheless, says Dominic Frisby…
20 Jan 2021

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
Lab-grown meat: how “moo’s law” will drive innovation
Soft commodities

Lab-grown meat: how “moo’s law” will drive innovation

Jim Mellon and Anthony Chow, co-founders of Aim-listed Agronomics, explain why they believe that “cellular agriculture” will benefit from massive long…
16 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021