Gold prices crashed on Monday, erasing gains accumulated earlier this year, as a surge in crude oil prices amid escalating US-Iran war raised inflation concerns and tempered expectations of monetary easing by the US Federal Reserve.
Gold prices extended its losses for a ninth consecutive session, plunging nearly 5% to fall below the $4,300 per ounce mark. The sharp decline in came on growing investor concerns that persistently high inflation could prompt the Federal Reserve to maintain a tighter monetary policy stance for longer, and also raise interest rates if needed, thereby reducing the attractiveness of non-yielding assets such as gold.
Rising crude oil prices due to the have heightened concerns that price pressures may remain elevated, limiting the central bank’s ability to cut interest rates in the near term. This has led to a sharp slump across global financial markets, including commodities and equities.
However, Peter Schiff, Chief Economist and Global Strategist at Europac.com, has challenged the current market narrative, saying that the sell-off in is misplaced. According to Schiff, the assumption that rising inflation will prevent the Federal Reserve from cutting rates — and therefore weaken gold price — is incorrect.
He argues that interest rates are already low compared to inflation, and if inflation rises without a matching increase in rates, real interest rates (after adjusting for inflation) will fall.
Falling real rates are historically supportive of gold prices, as they reduce the opportunity cost of holding the non-yielding asset.
“Selling gold because rising inflation will keep the Fed from cutting interest rates, when rates are already too low, makes no sense. Falling real rates are bullish for gold. It’s the stock market that needs rate cuts. That’s why it makes no sense that stocks are down so little,” Schiff wrote in a post on X.
He further noted that the stock markets rely more on interest rate cuts to keep rising, but they have not fallen much so far. According to him, this mismatch does not reflect the actual economic situation.
Schiff’s comments suggest that investors should avoid panic-driven decisions, particularly selling gold solely on expectations of delayed rate cuts, as the broader macro environment may still remain supportive for the yellow metal.
Gold Rate Today
Gold prices slipped more than 8% to hit its lowest level in four months, after logging its biggest weekly loss in about 43 years last week.
Spot price dropped 6.3% to $4,203.21 per ounce, extending losses into a ninth straight session. It slumped more than 8% to $4,097.99 earlier in the session to its lowest level since November 24. US gold futures for April delivery dropped 8.1% to $4,205.10.
Gold prices had dropped more than 10% last week, its steepest weekly loss since February 1983, and has also retreated about 25% from its record peak of $5,594.82 an ounce reached on January 29, Reuters reported.
Spot silver price declined 6.1% to $63.66 per ounce.
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