The legendary global investor John Templeton once said that the best time to buy is “maximum pessimism” and the best time to sell is “maximum optimism”.
New York (CNN Business) The US Federal Reserve surprised the market on Wednesday with predictions that future interest rate hikes would come somewhat earlier than expected. Gold miners, in particular, were disappointed.
The price of gold fell 4 per cent on Wednesday and fell again on Thursday, falling below $1,800 an ounce for the first time since early May.
While it is true that gold often rises with inflation fears, Wall Street may have already priced this scenario in. Investors seem to be selling gold now because of expectations that the Fed(Federal Reserve) is taking the threat of inflation more seriously and may act more aggressively to contain it.
A rate hike will be bad for gold, which will lose its lustre compared to other assets, including bonds, which tend to benefit in the face of rising rates.
“The prospect of further yield increases should limit the yellow metal’s upside potential, despite rising inflationary pressures,” said Ipek Ozkardeskaya, a senior analyst at Swissquote, in a report on Thursday.
The Fed’s more aggressive approach to inflation could lead to higher bond yields as well as a stronger dollar, which is not good for gold.
Сhief market analyst at AvaTrade, said in a report on Thursday that the sell-off in gold was similar to the “taper tantrum” that occurred in 2013, when the Fed suggested it would begin to reduce the pace of bond and other asset purchases.
If Templeton were alive today, he might say that now would be a good time to buy.