Gold dips as investors switch to equity

The price of gold is back below $1400, as hopes that the Federal Reserve will keep their stimulus in place have pushed stocks higher.

The price of gold is down 0.9% today, as investors take their money out of gold and invest in the riskier equity market. The surge in global equity markets over the past few months is largely attributed to the loose monetary policy of the Fed. The US central bank has stated that it will maintain its expansionary monetary policy until their unemployment rate drops to 6%. It currently stands at 7.5%.

Yesterday, the US reported a contraction in the manufacturing sector, which highlights that the economy is not as strong as originally thought. Dennis Lockhart of the Federal Reserve Bank of Atlanta stated that it is unlikely that the stimulus package will be reduced in June; traders took this as a sign that the Fed will keep printing money for the foreseeable future.

Gold is seen by investors as a safe-haven asset, so when equity markets are declining we often see a gold rally. On Friday, the US will release its latest set of unemployment numbers, and if it declines we might see traders sell stocks and buy gold.

Spot gold chart

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