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Gold Has Been a Disappointment This Year. What Could Change That.


Rising interest rates and strength in the dollar contributed to gold’s drop to $1,700.20 an ounce on July 20, the lowest finish since March 30, 2021. Here: a row of gold ingots in a foundry.

Andrey Rudakov/Bloomberg

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Gold has failed to show its value as a haven investment so far this year, with prices marking their lowest settlement since the spring of 2021. And a key index that tracks the performance of gold mining stocks dropped to a more than two-year low.

Even so, it may be safe to bet that the metal will prove once again just how precious it is to investors—under the right conditions.

Rising interest rates and strength in the dollar contributed to gold’s drop to $1,700.20 an ounce on July 20, the lowest finish since March 30, 2021, while the NYSE Arca Gold Miners index recently fell to 701.80 intraday, its weakest since April 2020.

Gold has spent the past couple of years stuck in a trading range, with the upper $1,600s on the lower end and stiff resistance just under and above $2,000—and that is likely the range the market will continue to see as the year concludes, says Peter Spina, president of

However, an indication that the U.S. Federal Reserve is nearing the end of its rate hikes would trigger a big response in gold prices, he says, potentially lifting prices toward the top end of their trading range or higher.

Red-hot U.S. inflation numbers have produced fears of more aggressive interest rates, raising the risk of a recession. The June U.S. inflation reading showed a rise to a nearly 41-year high of 9.1%, backing expectations for more interest-rate hikes by the Fed.

Investors have historically used gold to offset losses from inflation, but central bank interest-rate hikes and strength in the U.S. dollar have managed to dull the metal’s appeal.

Paul Wong, market strategist at Sprott Asset Management, points out that the concept of gold as an inflation hedge was born nearly 50 years ago in a market that is “nearly entirely different from the current market.”

In the 1970s, the Swiss franc and gold became the “dominant recipients of safe-haven flows,” he says. Today, the “Fed and other central bank policies have become the primary driver of market expectations as they control liquidity levers.” The Fed announced a 75 basis point rate increase in June—the biggest since 1994—in an effort to combat inflation.

“Inflation and concurrent recession fears began to crystallize around the end of Q1 and have increased since,” so gold has suffered under either scenario in the short term, says Wong. Even so, “selling flows far outweigh any message inflation, or recession, has on gold.”

Wong warns of further declines in the short term, with the possibility for a move higher thereafter. Gold prices may “temporarily fall to levels that may surprise,” he says. But “there is an adage that bear markets seldom end with a yawn and a shrug,” so “writing off gold, may be early.”

For now, there is no sign of a major turnaround. Gold prices trade nearly 6% lower this month, contributing to a year-to-date loss of 7%.

Still, if the debt markets can no longer handle rising interest rates, the Fed would be forced to slow down and stop rate hikes, prompting a cool-off in the dollar and “Western gold investors will start to add to positions,”’s Spina says.

If gold prices do bottom out, that may offer an opportunity in gold mining stocks, says Spina. The

VanEck Gold Miners
exchange-traded fund (ticker: GDX) has lost over 20% this year. Gold miners trade as if gold was under $1,500, Spina says.

The entire gold mining sector has been “decimated,” he says. “As long as the gold price holds up here and starts to rise again, gold stocks will have a big reversal rally.”

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