Gold prices have dropped back below US$1800 after US President Joe Biden confirmed Jerome Powell will continue as chair of the Federal Reserve.

The reappointment of Mr Powell reinforced the market’s view that rates will increase next year, which in turn bolstered the greenback and US bond yields.

The drop in price comes after worsening COVID-19 conditions in Europe had pushed the yellow metal to its highest price since mid year, spurred on by investors clamouring for safer asset classes.

Gold was fetching just below US$1850 per troy ounce until Tuesday, helped along by the developing Europe situation and growing inflation fears.

The metal is widely considered a good hedge against inflation’s detrimental effects on equities.

Although the strong US dollar could keep a cap on gold prices in the short to medium term, the metal remains popular among financial experts as a hedge against inflation and as a means of long-term portfolio growth.

That view is shared among leading research houses and investment banks, including UBS, Goldman Sachs and Morgan Stanley – with the latter two also holding a bullish view on gold’s price over the next year.

Metal prices tipped to climb

Commodity prices are expected to climb in the coming years as historic underinvestment leaves supplies badly trailing demand.

Further fuelling these gains is the transition to electric vehicles and green energy – both of which require vast quantities of metals, most notably copper.

With very little real investment being made into metals over the past six years and demand continuing to grow, metals producers are in a venerable position to capitalise on changing market trends.

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Sources

• Reuters, Gold breaks below $1,800 as dollar, yields firm on rate hike bets
• FX Street, Gold Price Forecast: XAU/USD bounces off two-week low, Fed rate hike bets to cap gains
• Beta Shares, How rising inflation affects investment markets
• The Motley Fool, Here’s what these top brokers think of gold as an investment in 2021
• Financial Post, Why a new commodity supercycle is upon us
• Morning Star, A commodities super cycle? Not really