Falling inflation, high interest rates and gold investment: an analysis of gold prices

Gold, although known since antiquity as a symbol of wealth, is not always the safest resource for storing capital. This is influenced by various economic factors, including high interest rates and falling inflation. Let's look at how these conditions affect the dollar price of gold.

The price of gold and the impact of high interest rates

The price of gold on international markets has been changing very dynamically in recent years, often attracting the attention of investors and speculators. Influence on gold rate factors, including monetary policy by central banks, inflation, and geopolitical threats or recessions. However, it is worth remembering that when interest rates are high, the cost of credit increases, which may discourage investors from buying assetssuch as gold, which do not generate current income and interest.

READ ALSO: How to buy gold? Everything about investing in gold [Guide]

Under such conditions, investments that they offer a fixed returnsuch as bonds or bank deposits, become more attractive in theory. We can therefore expect that in a high interest rate environment, the price of gold, both in dollar and euro terms, may be under pressure. It is worth adding here that there are still prospects for further increases, on both sides of the Atlantic. Currently, the expected marginal interest rate for the Eurozone is almost 4%, and for the Fed it is 5,40%.

Falling inflation and the price of gold

Gold is often seen as a hedge against inflation. When the value of money decreases, the prices of goods and services increase, and this in turn increases the attractiveness of gold as a store of value. However, if we are dealing with falling inflation, i.e. disinflation, the incentives to invest in gold decrease.

Falling inflation, especially when combined with high interest rates, can put pressure on the price of gold. Whether it be the price of gold in euros or the price of gold in dollars, both can be expected to be influenced by these unfavorable economic conditions.

Gold price today and possible prospects for the future

Gold bounced off the $2000 level three times, which may be showing his significance as a resistance level, which seems to have held back gold prices for three years now. Neither the pandemic, nor the war, nor the massive inflation were able to permanently increase above USD 2000 per ounce.

In the future, which may or may not happen again, the price of gold in US dollars drew a correction towards USD 1700-1600. If other factors, such as a sudden recession or worsening of the armed conflict, do not appear, the price of gold could repeat the previous pattern. It seems that gold could be positively affected by a weakening dollar, interest rate cuts or a recession.

Wnioski

Gold can play important role in a diversified investment portfolio, but economic conditions such as high interest rates and falling inflation may negatively affect its attractiveness. Before deciding to buy gold, it is worth understanding how these factors can affect the price of gold now and in the future, which we will regularly mention in our materials. Also, keep in mind that through CFDs or contracts, you can also assume that the price of gold will fall.