Many investors have rubbed their eyes in astonishment in the past two weeks: Despite a global crisis caused by the corona pandemic and significant falls in the stock markets, the gold price also declined – although not nearly as strongly as the large stock indices. At the same time, the key rate cut in the United States could have given the gold price a positive boost. Instead, it not only fueled uncertainty on the capital markets, but also did not appear to drive the gold price in any way. What happened?
The futures markets are decisive for the gold price
The futures markets provide the immediate background for the decline in the gold price: numerous institutional investors had to liquidate their gold positions in order to increase their liquidity – e.g. to meet the margin requirements in their futures transactions on the stock markets. The increased gold demand typical of crises has suffered in no way. Gold traders in numerous countries can confirm this: Many gold providers are currently struggling to meet demand, both online and locally.
Long-term factors also determine the gold price
A great advantage of the precious metal is its largely very low correlation to other asset classes. In the short to medium term, however, the gold price reacts to the development of real interest rates and to certain currencies, especially the US dollar, to which gold has a strongly negative correlation. In times of crisis in the capital markets or geopolitical tensions, gold demand usually increases because the value of the precious metal remains stable even in the face of weakening share prices.