Gold continued weak in its performance during September. The yellow metal’s price dropped almost 5.5% from $1286.50 to $1216.5 (London PM Fix). In the last Market Overview we came to the conclusion that the real interest rate is one of the main drivers of the gold price. Although the negative relationship between real interest rates and gold prices does not always hold, the recent medium-term declines (including the last month) were probably, to a large extent, caused by the rise in the long-term real interest rates.
Graph 1: 30-year (green line) and 10-year real interest US rate (red line) from 2013 to 2014
However, many analysts write that gold suffered mainly from strengthening of the US dollar (we have also written about the short-term link between gold and USD – it was useful to time the local bottom in gold earlier this month). Indeed, the U. S. Dollar Index rose 3.85% in September from 82.7480 to 85.9360, which supports claims that it was the relentless strength of the U. S. dollar that drove changes in the gold market in the last few months.
This post was published at GoldSeek on 4 November 2014.
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