Since Trump got elected as president, gold price fall has accelerated. At the same time, fears of inflation heightened given expectation of Trump's fiscal stimulus. The dramatic fall in bond prices is also caused by fears of inflation.

What puzzles me is that gold price has been falling despite the widespread fear of inflation this time round. Historically, when fear of inflation goes up, gold price goes up. This time, gold price behaved in the opposite manner. Why the unusual behavior this time round? What are the factors behind this anomaly?

closed as off-topic by Dheer, Victor, MD-Tech, Chris W. Rea, Grade 'Eh' Bacon Dec 16 '16 at 15:03

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  • 2
    Interesting question, however this is more of economics and less of personal finance. – Dheer Dec 16 '16 at 8:07
  • Fixed income is more attractive due to rising yields. – SMeznaric Dec 16 '16 at 9:43
  • SMez: fixed income is more attractive due to rising yields but simultaneously less attractive due to increased inflation (according to expectations). So this is a net-zero effect. If yields rise from 2% to 3% but inflation rises from 1% to 2%, holding bonds still only actually yields 1%, adjusted for inflation. – Comptonburger Dec 16 '16 at 10:07
  • Yields on treasuries have gone up by more than inflation expectations. – SMeznaric Dec 16 '16 at 10:31
  • Because gold is very volatile and not a perfect hedge against inflation. – Grade 'Eh' Bacon Dec 16 '16 at 15:02

The value of the dollar has risen relative to other currencies. Gold is traded in dollars, so for investors holding these weaker currencies gold is actually more expensive now. They will be more likely to sell gold and less likely to buy it, driving the price of gold down.

Also, while inflation expectations may be up, the Federal Reserve is currently tightening monetary policy by raising interest rates, a deflationary move.

  • 1
    So you say raising interest is deflationary? I always understood higher interest is inflationary? – Aganju Dec 16 '16 at 13:29
  • @Aganju Raising interest rates causes disinflation, but not always to the point of deflation. That is because it encourages more saving / less debt, and less spending. – Paulpro Dec 16 '16 at 15:40
  • Raising the interest rate is deflationary, because it makes it more expensive for banks to borrow from the (more or less unlimited) Federal Reserve bank supply. It reduces the total amount of money available for borrowing. – Joe Dec 16 '16 at 20:21

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