Buried under gold… Revisited


The successive rate hikes by the Fed and ECB and the expectation that this trend will continue are about to cause gold price to experience its longest decline since the late 1960s.

The price of gold went through some serious fluctuations during the Iran-Iraq War and kept its investors waiting for nearly 30 years to rise above $400 . After surpassing this level at the beginning of the 2000s, which was the strongest resistance level of all times, gold price started to rapidly increase with the 2008 financial crisis.

As the world overcame the financial bottleneck caused by the Mortgage Crisis, gold price relaxed again, but its value per ounce managed to remain above $1000. Then the big climb started, rising to $2000 from 2015 until the mid-pandemic period. Then gold relaxed again in anticipation that things would get back to their normal routine. But today, gold is on an entirely different path.

Gold spot price has declined by 10% since the start of the year. It is now in fact 20% below the value it reached when the Russo-Ukrainian war began. As I always say, the demand for gold decreases whenever the interest in strong currencies grows. Rising bond yields along with the strong dollar negatively affect the gold price per ounce. Increasing interest in the US Dollar and US debt securities is not good for gold.

When we look at the bond yields and their maturities, we could say that although the next two years of the US economy look uncertain, the next decade looks promising. This situation causes gold investors to avoid tying up all of their money in gold.

“Always the Same Question: Will Gold Price Fall Even Further?”

Most analysts say that the gold price, which is dragged down to $1600, may drop to even lower levels due to the Fed’s continuing rate hikes, which naturally worries those who have invested in gold. It is clearly known that the exchange rates are pressured in Turkey. However, investors are hesitant to buy gold, which price has fallen from record high levels. Probably everyone is waiting for a magical trick that will push the exchange rates down before the elections.

I have been trying to explain that buying and selling gold to profit from price movements is an activity that only professionals can do effectively, and that amateurs should be patient and carefully weigh their every decision before putting it into practice. It is necessary to wait patiently after buying instruments that have been in decline for a long time, without being distracted by price movements.

“Will it fall any further?” is a frequently asked question, but also a pointless one. No one can constantly buy gold at the lowest price and sell at the highest. Only a few people can achieve such excellence, and almost none can do it continuously. Therefore, if those who want to make profit by trading gold do not actually earn their living from this activity, looking at the computer screen all day long time may not be a profitable behaviour.

I hope it won’t take 30 years to see gold price per ounce hit peak level like it did in the 1980s. However, it would be useful to monitor this decline very carefully. The future developments might be of great importance especially for Central Banks, whose reserves mostly consist of gold. The CBRT, for instance, has nearly 700 tons of gold reserves.