Gold () April futures opened at $4,899.10 per troy ounce on Tuesday, down 2.9% from Friday’s closing price of $5,046.30. This is gold’s second consecutive start below $5,000 after opening above that threshold from Feb. 9 through Feb. 12.
Gold’s pullback follows positive reports on the U.S. labor market and inflation. Last Wednesday, the Bureau of Labor Statistics reported that nonfarm payroll rose by 130,000 in January. Analysts had expected 55,000. On Friday, the Consumer Price Index report showed a 0.2% price increase in January from the prior month, bringing the annual inflation rate to 2.4%. Analysts had expected a monthly price increase of 0.3% and annual inflation of 2.5%. The better-than-expected metrics likely mean less opportunity for the Fed to cut interest rates this year. CME FedWatch, which predicts probabilities for rate changes, currently shows a 7.8% chance for a quarter-point rate reduction in February. Last week, the measure was 20.1%.
Lingering high interest rates typically support a higher dollar value, which can limit gold demand.
The opening price of gold futures on Tuesday was 2.9% lower than Friday’s close. Here’s a look at how the opening gold price has changed versus last week, month, and year:
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One week ago: -2.3%
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One month ago: +6.3%
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One year ago: +66.8%
On Jan. 29, gold’s one-year gain was 95.6%.
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Gold has the same high-level risk as any investment: You could lose money. And, as with other investments, a loss on gold can materialize in different ways. Understanding the potential outcomes is the first step to managing your risk when investing in gold.
According to gold experts, would-be gold investors should understand these four risks:
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Price
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Speculation
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Opportunity cost
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Fraud
Today, we’ll focus on the first two: price and speculation.
There is a price risk for investors who buy gold when the metal is nearing record high prices. “Buying high to hope for short-term higher is a tough strategy,” said Darrell Fletcher, managing director, commodities at Bannockburn Capital Markets.
Despite the high prices, there are positive dynamics in play for the precious metal. Fletcher pointed out that gold is recovering from decades of low prices, and it’s an increasingly popular diversification asset for central banks and individual investors.
The right expectations, a long timeline, and an appropriate allocation can limit your pricing risk. “Gold should not be seen as a driver of supercharged returns — it’s there to act primarily as a stabilizer in a diversified portfolio,” explained Alex Tsepaev, chief strategy officer of B2PRIME Group.
If you are interested in learning more about gold’s historical value, since 2000.
Thomas Winmill, portfolio manager at Midas Funds, encourages investors to view positions in gold bullion, coins, and ETFs as speculative. Gold is a commodity, and “commodity prices are dependent on macroeconomic, political, industrial, and financial factors that are unpredictable, and in some cases, unknowable.”
Despite its recent performance, gold is an unpredictable asset. Keeping that in mind when making trading decisions could protect you from over-exposure and unrealistic expectations.
Whether you’re tracking the price of gold since last month or last year, the price-of-gold chart below shows the precious metal’s steady upward climb in value.
Learn more: Gold alternatives? How to invest in silver, platinum, and palladium.