Gold price downtrend is temporary

SHAH ALAM – The current decline in gold prices is not a sign of a major shift in the global gold market trend, but rather a market correction phase following a sharp increase previously.

Universiti Sains Islam Malaysia Economics and Banking at the Faculty of Economics and Muamalat senior lecturer Dr Mohd Faisol Ibrahim, said the downward trend is only temporary, allowing gold prices to return to more normal levels.

He said gold prices may dip slightly in the short term, influenced by global inflation developments, oil prices and investor sentiment towards the United States (US) economy.

“This is due to rising oil prices contributing to higher goods and services prices, which in turn affects inflation rates.

“In addition, investor confidence in the stability of the US dollar is gradually improving, while global geopolitical issues involving the US and other countries have temporarily eased, contributing to the decline in gold prices,” he told Sinar on Thursday.

Gold prices fell to their lowest level in more than six months on Thursday, dropping 0.2 per cent to US$4,063.87 per ounce as of 12.43am GMT, after hitting their lowest since Nov 21 in early trading.

US gold futures for August delivery also fell 1.1 per cent to US$4,086.50 per ounce.

Faisol said several current factors, including the strengthening US dollar, temporarily easing geopolitical tensions and investor profit-taking, have contributed to the decline in the precious metal’s price.

He said the stronger US dollar has reduced gold’s appeal as a safe-haven asset compared to periods when global markets faced higher uncertainty.

“This can be seen as the US dollar has strengthened against the ringgit over the past few days, with US$1 equivalent to RM4.07 today.

“In addition, global geopolitical tensions that appear to be easing and being absorbed by world markets have also affected gold demand, leading to lower prices,” he said.

He added that investors selling off their holdings when gold prices are high have also put pressure on the market, contributing to the decline.

However, he did not rule out the possibility that gold prices could rise again towards the end of the year, as gold remains a safe investment instrument with strong long-term returns.

“It is highly likely that gold prices will rise again, but within a range that is not as high or as drastic as before.

“If global geopolitical issues involving the US and other countries flare up again, it could trigger a sharp increase in gold prices,” he said.

He added that US Federal Reserve monetary policy decisions and global geopolitical developments will continue to be the main factors determining the direction of gold prices in the coming months.