- At Globe Live Media we explain why investing in gold right now in the US is not the best decision, and what investors currently prefer to protect themselves from inflation
In theory, this is the perfect time to invest in gold in the United States, as it is an asset whose price tends to rise in times of inflation like the one we are currently experiencing. But, strange as it may seem, gold prices are not only not up at the moment, but are almost 20% below their peak in March of this year.
In other words, investing in gold right now is not the best decision if you are in the US, since you could almost say that gold has officially entered a downtrend.
Warren Patterson, head of commodity strategy at IGN, told CNN Business that the reason for this general decline in gold prices is because investors don’t have an “appetite” for gold in the current scenario.
But why does this happen? If gold has historically been considered an asset with “safe haven” properties in the face of geopolitical situations such as the one currently being experienced with Russia’s invasion of Ukraine (and the consequent disruption of market stability in Europe).
The answer to this seems to be found in the so-called “Fed Effect” (Federal Reserve Effect).
What is the “Fed Effect” and why has it made investing in gold in the United States not the most advisable right now?
According to a CNN Business report, the fact that gold is not currently attractive to investors is due, in part, to the monetary policy carried out by the Federal Reserve, that is, due to increases in interest rates. interest that has been carried out to curb inflation, which in August was 8.3%.
And it is that these increases have many collateral effects, such as, for example, the over-appreciation of the dollar, which has become extremely strong when compared to other foreign currencies. This has made gold purchase transactions (which are usually done in dollars) much more expensive for foreign investors, which has probably reduced the demand for gold.
But gold not only has this problem, but also has to compete with another very reliable investment instrument: US Treasury Department bonds.
Due to the rise in interest rates by the Fed, the yield on 10-year Treasury bonds has risen 1.5% since the beginning of 2020, becoming a very attractive asset for investors, who can obtain better returns on these bonds than on investments in gold.
And future prospects do not seem to indicate that the world’s central banks, including the Federal Reserve, will lower their interest rates, which will keep this cycle of preference for Treasury bonds over gold, according to specialists. .