Low volatility in Gold has stabilized the exchange rate
Gold is trading near the level of $ 1730 per ounce, the volatility of quotations remains low since last week.
The price of the asset has been very much affected recently by the growth of government bond yields in different countries. In the short term, rising interest rates will continue to put pressure on the gold market. The Fed and ECB's benchmark interest rates have remained at record lows for many months, but government bond yields, on the contrary, have risen markedly. Rising interest rates are a serious factor of pressure on the price of gold. The fact is that bonds are a protective investment asset and are considered competitors for the precious metal. When their returns are very low or even negative, they are not of interest to investors with a long-term planning horizon. However, over the past few months, their profitability has increased, and the price of gold has fallen by 8% since the beginning of 2021.
The rise in government bond yields puts pressure not only on the price of gold, but also complicates government financing. All this is happening against the background of the struggle with the consequences of the coronavirus crisis, so countries are forced to increase their debt burden to cope with economic problems. Rising interest rates are also a signal for the beginning of a crackdown on inflation. This means that in the medium and long term, investors will become increasingly interested in gold to protect their savings from depreciation. In the event of an increase in the national debt, the probability of currency and state crises increases. In such conditions, gold is usually in high demand. Thus, the role of the precious metal as a protective asset will only increase.
In the forecast, I assume an increase in the price of gold to the level of $ 1,750 per ounce.