Q – I thought it would be rising during these times, but it is dropping instead. Is this because people are thinking of deflation? – Vito L.
A – The drop in the gold price has been rapid and steep. It’s down more than US$100 from its high a week ago, after another big drop on Friday.
The decline seems counter-intuitive. Gold has always been a safe haven in turbulent times, so the sell-off doesn’t seem to make much sense.
On Friday, The Wall Street Journal published an article attributing the drop to a strong U.S. dollar, plus sales by investors needing cash to meet margin calls. There is also concern by some investors that the current crisis may lead to deflation, which would reduce the value of gold and hard assets like real estate. That’s certainly a possibility, but I don’t regard it as a high probability.
At this point, gold appears cheap, but more downside is possible. I would hold any gold-linked assets but not buy more until the price stabilizes. – G.P.