Why is gold bullion falling when inflationary expectations are climbing?
There are several important reasons why gold prices are floundering today.
Nominal interest rates are rising sharply after having declined for many years. Gold bullion offers no income, so when rates rise investors are offered a yield- oriented alternative to gold.
Historically when real interest rates have turned negative, gold prices have risen sharply. Although real rates are still negative today, they are considerably less negative than they were at year end.
The US dollar has finally started to rise once again versus global currencies. This has normally been negative for gold.
Gold bullion is facing competition from bitcoin with many investors preferring its long- term outlook over gold.
Gold is not an industrial commodity like copper and steel. As a result of renewable energy and the electrification of cars, silver has also become much more of an industrial metal than gold.
As you can see from the attached chart, gold prices have performed well in a declining interest rate environment. As rates start to climb, gold prices begin to fall.
Unless inflationary expectations really start rising much faster than interest rates are increasing, gold prices will continue to face major headwinds.