Gold prices hit a 4-month low, why are investors rushing to sell off?

Optimism about economic prospects and positive information about vaccines have made investors less interested in safe-haven assets such as gold.

What makes gold prices fall?

Some analysts are starting to withdraw their previous predictions that gold could reach $2,000/ounce by the end of the year.

At the end of the weekend trading session, gold prices plummeted to 1,787 USD. This is the lowest level since the beginning of July. During the session, prices reached 1,773 USD/ounce at one point. Within 1 week, gold prices evaporated by 4.5%, recording the strongest decline since the end of September.

Although looking at the macro economy, many factors are still supporting gold prices to increase. However, in reality, experts are starting to change expectations for new record highs until next year.

"I do not agree with the hypothesis that world gold prices have increased due to the pandemic. Information about the economic support stimulus package, the US dollar depreciated, and low interest rates - are the reasons why gold prices increased to a new record high. And all three of those factors have not disappeared, said Kevin Grady, president of Phoenix Futures and Options.

However, Mr. Grady no longer expects gold prices to break through the 2,000 USD peak by the end of this year. This expert estimates that gold prices will end 2020 below $1,900/ounce.

TD Securities commodity strategist Daniel Ghali said that there is still a lot of momentum to push gold to new highs.

"We need to analyze what motivates investors to buy or sell gold. That is the USD price. The current fluctuations in gold prices are completely out of place with what is happening in other markets," said Daniel Ghali.

December gold futures are currently at $1,782.70, down 1.26% in just one day

What factors will affect gold prices

Sean Lusk, co-head of Walsh Trading, said investors are being more cautious.

Experts say that the positive signal of early access to a COVID-19 vaccine has increased the optimistic sentiment of investors, shifting assets away from safe havens such as gold. In addition, the record increase in US stocks also affected gold prices.

Mr. Lusk also noted that many investors are starting to pay more attention to cryptocurrencies than gold. Bitcoin is also seen as a holding asset in the context of huge stimulus packages against the impact of the pandemic that could cause inflation and weaken the USD.

"The cryptocurrency market has functioned well throughout the COVID-19 crisis, partly thanks to Bitcoin becoming an 'hiding asset,' Bloomberg quoted Mr. Marc Fleury, CEO of Financial Technology and Asset Management Company Two Prime.

From now until the Christmas holiday, the market's attention will focus on 3 main factors: the developments and spread of the COVID-19 epidemic, the economic stimulus package, and the new move of the US Federal Reserve.

ING economist James Knightley said: marking sentiment will likely be affected by news about the timing of the vaccine and concerns about strengthening measures to prevent the COVID-19 outbreak shortly after Thanksgiving.

"However, with an extremely low interest rate environment and the possibility of countries issuing additional stimulus, gold prices may continue to increase in the long term," said an expert. The economic impact of the COVID-19 pandemic has caused some central banks in countries to maintain interest rates at record low levels. The risk of inflation supported by stimulus packages has helped gold increase by more than 17% since the beginning of the year.