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The price of gold had fallen 3% last week. While, it is not very large when it comes to long-term investing, for the traders it can lead to substantial losses. So far this month, gold lost more than 6% of its value, MarketWatch reports.
One of the reasons for this drop is the expectation that the Federal Reserve Bank will start raising interest rates soon. Higher interest rates mean higher dollar and lower commodity prices (such as gold or oil) since many commodities are priced in the American currency. So, if the U.S. Dollar rises, these commodities fall in order to keep their price the same in the other currencies.
Back in 2011, gold’s price had reached nearly $2,000 per Troy ounce. It was during times of economic uncertainty and amid massive quantitative easing by the Fed. Currently, the yellow metal is trading at around $1,200 an ounce, nearly a 40% discount to its all-time high.
Gold’s poorer cousin, silver, is down even more. After reaching around $50 an ounce, the silver now trades in high teens. Other precious metals, such as platinum and palladium, are off their highs, too.
While there’s a debate going about whether gold is overpriced or not, it relates mostly to the short and medium terms. In the long-term, gold is considered to be a hedge against inflation and a storage of value. And it’s been so for thousands of years.