Gold Prices Could Plummet As Dollar Strengthens

Life

Share this Post

Next week promises to be a very stressful time for those keeping tabs on world currencies, especially for Western observers.

The sterling pound is already fluctuating ahead of Scotland’s referendum, which could decide if the country will leave the United Kingdom.

Eyes are also on the American dollar. The US currency is expected to strengthen as interest rates go up.

But while a stronger dollar is great news for the United States, its success is causing problems for gold investors.

The news that the dollar is gaining steam brings with it the expectation that the value of gold will drop.

Commerzbank Corporates & Markets reportedly said this in a statement to clients:

The price of gold [is] under pressure. [...] Should the Fed actually signal an imminent rate cut next week by changing its communiqué and consequently give additional tailwind to the US dollar, this should put further pressure on the gold price.

With gold trending down, one has to wonder whether or not the “buy gold” craze of the recession years is finally over.

For the longest time there was a strong belief that the American economy could not recover and the dollar was doomed.

It was almost taken for fact that the best thing Americans could do to protect themselves was invest in as much gold as possible.

The panic appears to have subsided.

Though as things move in a more positive direction for the American economy, it would be premature to assume that things will go terribly for the gold market.

It’s true that a strong dollar and higher interests means that gold is no longer a precious metal investors are seeking out for security.

However it’s doubtful that even a significant drop in the value of gold will see major long term consequences.

“We remain optimistic about the price of gold in the medium term,” wrote Commerzbank Corporates & Markets. “Reviving Asian physical demand and stronger investment demand should provide further impetus."