Gold Dips Below $1,900 as Potential Double Bottom Looms

Key Takeaways

• Gold is currently trading near its lowest point since August, following three days of steady declines.
• Traditionally considered a safe haven, the yellow metal is losing its shine in the wake of the Fed’s announcement.

Not So Safe Haven

Gold fell for the third consecutive day Wednesday, erasing just under 2% of its valuation for the period to presently hover near $1,898 an ounce. The recent drop extends the metal’s lackluster performance in the mid-term. Since May, when gold peaked at a record high of $2,074, it has shed about 9% to trade at current market prices.

Today’s fall, just shy of the psychological level of $1,900, indicated that market participants aren’t too keen to hold gold in the current environment. Gold is generally considered a safe haven for investors and a sought-after asset when the dollar’s value plummets during periods of elevated inflation.

That being said, with the recent Fed update emphasizing a “higher for longer” strategy on battling inflation, market sentiment has changed.

Concerns of an incoming recession are diminishing as Fed officials display a confident approach to tackling inflation by leaving rates unchanged. As a result, investors may be more willing to diversify and buy into other assets, leaving gold in the dust. Conversely, if a recession were to be confirmed, the reaction would be opposite and gold’s value would likely rise.

Gold’s Downward Trend

The continued downward trend since May in gold’s prices is not looking exhausted just yet. Sliding from its peak, gold touched a low point in August at around $1,884. What’s more, it could be heading towards a potential double-bottom. 

The precious metal is considered a “non-productive, non-yielding” investment, meaning it pays no dividend, nor interest. Its value fluctuates up and down, primarily driven by scarcity and speculation. 

Generally valued in US dollars, gold typically has an inverse relationship with the greenback. Historically, during long periods of dollar appreciation, gold could be seen losing momentum. And that’s what markets have recently been observing.

Given the constantly changing gold landscape, traders and investors should take a minute to evaluate the risks and benefits of investing in gold. Be sure to tactfully conduct your market analysis on every asset before deciding to add it to your portfolio.