Since August 4, 2021, the price of gold has been in free fall. From one day to the next, the price has crashed vertically by 3.6 percent to 1,741 dollars per troy ounce. On Monday night, the price of a troy ounce of gold slipped below the $1,700 mark for the first time in more than four months.
The last twelve months have already been a rollercoaster ride for the precious metal and caused a minus of over 15 percent. “The sector is still in a consolidation phase,” said Roland Stöferle, fund manager of the Incrementum Crypto Gold Fund.
800,000 new jobs significantly exceed expectations
Like the price losses in the past, the recent crash in the gold price is also a sign of a resurgent US economy. This time, according to the US labour market report, an unexpected number of newly created jobs in almost all areas and the associated speculation about a US exit from the us’s ultra-loose monetary policy have scared investors into the crisis currency. The pace of employment growth is accelerating. On average, significantly more than 800,000 new jobs have been created in the USA in the past three months.
Fears that US growth is slowing have been refuted
“This suggests that the economy is continuing its robust growth despite recent fears about the delta variant. This is a good sign of continued earnings strength in the second half of 2021, which should support the market, especially for the cyclically sensitive sectors that have been lagging behind recently. There are also no economic lasting effects from the new wave of infections in the summer,” summarizes Matt Person, head of research at the British investment company Janus Henderson.
In addition, the forecasts for employment have been revised upwards. “The fear that US growth would slow down has thus been refuted. Rather, the strong figures testify to strong growth momentum,” explains David Riley, chief strategist at London-based investment firm Blue Ray.
A few more job reports like this and the full recovery of the labor market will be achieved. Then the Fed can begin repatriating its $120 billion a month bond-buying program, which may be announced as early as its September meeting.
Violent but short delta wave expected
“While the spread of the delta variant poses a risk to economic development, international experience suggests that it will be severe, but short-lived, and the economic impact will be small.”
Two rate hikes expected
Experts predict growth of more than seven percent for the US and a significant increase in inflation to around five percent, which is why the US Federal Reserve already indicated before the latest labor market report that there could be a U-turn in key interest rates. At the FOMC meeting, the crucial body for US monetary policy, it became clear that the majority expects interest rates to rise in the foreseeable future.
Until recently, an increase in interest rates from the previous zero level had only been planned for 2024. Now, however, 13 out of 18 FOMC members even see two interest rate hikes of 0.25 percent each in 2023. However, if interest rates rise, this is not good news for gold investors.
Gold price back at $1,700 in a year?
Although DZ Bank expects a gold price of 1,800 dollars in the next six months, in one year the gold price should return to today’s level of around 1,700 dollars.
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How gold and commodities react to different inflation scenarios
Nevertheless, gold has not become obsolete as a protection against rising inflation and thus as a preservation of capital. The Fed continues to buy $120 billion worth of bonds month after month, driving asset prices higher, even if a so-called tapering, i.e. a reduction in bond purchases, is in the room.