Gold’s sharp drop: a classic case of “buy the rumour, sell the fact"

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Whilst it seems counterintuitive that gold prices have dropped dramatically this month, the price action is entirely consistent with how the market always reacts to speculative positioning based on geopolitical events.

We have an adage “buy the rumour, sell the fact” and whilst a drop of more than $1,000 per ounce seems excessive, it is unlikely to last for long because this speculative liquidation, whether to finance margin calls on other asset classes or, in some cases profit taking, gives the institutional investors a chance to buy a rare dip which has been a long time coming.

Whilst it’s unlikely that interest rates globally will continue to ease given the heightened inflationary pressures, I don’t see US rates going much higher, simply because the US can’t afford to lose control of rates given the huge (and growing) deficit that needs to be funded, so my belief is that gold prices will continue its upward trend with demand outstripping supply for the foreseeable future.