What do tanking gold prices say about the economy?

Gold bars are seen at the Czech Central Bank in Prague.

Not that long ago, gold was trading near $1,900 an ounce. Today it’s fallen to just above $1,200. 

What’s that tell us about our economic confidence? Andreas Hauskrecht, a professor at Indiana University’s Kelley School of Business, is adamant about the answer. Not much. “Gold is the worst indicator for how people feel about the economy,” he says.

But if we can’t say what falling gold prices mean, we might be able to answer why gold prices are falling.

One theory is that rising interest rates are luring investors to other investments.

Another theory is that we’re a little less freaked out about the economy than we have been.“Gold has traditionally been thought of as something that is a disaster protection,” says Campbell Harvey, a finance professor at Duke University. “Now that the economy is returning to a more normal situation, that disaster demand is evaporating effectively.”

But his research finds gold isn’t the great hedge that investors think it is. Prices, he says, are just too volatile.

About the author

Adriene Hill is the senior multimedia reporter for LearningCurve.

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