Gold is losing its allure as investors brace for higher interest rates. Prices of the precious metal have fallen 4.9% from their recent high on July 10, as a string of upbeat U.S. economic reports has bolstered the case for tighter U.S. monetary policy. On Thursday, gold posted its steepest decline in over a month as investors left the market ahead of Friday’s speech by Federal Reserve Chairwoman Janet Yellen at a gathering of central bankers in Jackson Hole, Wyo.
Gold catapulted to a record in 2011 as investors wagered that the Fed’s unconventional efforts to boost growth, including bond purchases and near-zero interest rates, would trigger higher inflation and weaken the dollar. But the metal’s price tumbled as inflation remained tame and the economy improved.
Now, Fed officials are debating when to raise interest rates, a move that would further diminish the case for owning gold. Gold produces no income and struggles to compete with interest-bearing investments such as Treasury bonds and bank deposits, whose yields will rise once market interest rates turn up. At the same time, signs that crises in Ukraine and the Middle East are having a limited impact on global growth also have reduced demand for gold as a haven.