Is it time to buy gold?

With the war against Iran, there have been significant drops in gold prices. Fundamentally, this decline has been linked to the war against Iran. Due to the impact of the war, our country's economic data and forecasts have changed significantly. Small investors have also been seriously affected by this situation. At the forefront of this is gold, which has been the most trusted safe haven and investment vehicle both globally and in our country for years.

However, in the last four-month period, gold has caused its investors to suffer losses of around 20% on average. Gold is, by its nature, a long-term investment vehicle. Therefore, there are two main reasons for the decline in gold prices in our country: the retreat in the ounce price of gold and the dollar/TL exchange rate. These two factors are creating serious pressure on the decline of gold prices in our country.

The main reasons are the high inflation figures in the US and the expectation that the Federal Reserve will not cut interest rates. In this situation, as interest rates remain high, investors are turning to the dollar and bonds instead of gold. With the rise in US bond yields, gold, which "does not provide interest income," has become less attractive. On the other hand, when the dollar index rises, the ounce price of gold generally falls.

There is an expectation from time to time that tensions in the Middle East will ease. When the need for a safe haven decreases, selling pressure comes to gold. Specifically for our country, if the dollar/TL exchange rate remains flat, the decline in the ounce price of gold is directly reflected in the gram price of gold.

In the short term, gold in our country is significantly affected by US inflation, the Fed's interest rate decisions, and geopolitical developments. If these expectations change in a positive direction, gold will rise again. In recent days, there have been reaction rallies following the sharp decline. In the short term, it may not be accurate to say "is this exactly the bottom level?"; however, a gradual buying opportunity has emerged for many investors.

If the Fed keeps interest rates high for a long time, gold may remain under pressure. However, gold has a special position for investors in our country. Gram gold prices will not remain at current levels and will rise again. The demand for gold by global central banks and geopolitical uncertainties will increase interest in gold once again.

The expectation that exchange rate pressure will continue in the long term in Turkey, gold purchases by central banks, and global uncertainties will increase the demand for gold, which is a safe haven. Even a signal from the Fed to cut interest rates will raise gold prices.

If an investor has an investment fund of 100 liras, it might be more appropriate to invest 50% of it in gold, 25% in interest-bearing accounts, and 25% in foreign currency.

In conclusion, the basis of the decline in gold lies in the accelerating momentum of inflation in the US and on a global scale, the pause in policy rate cuts by major central banks, the strengthening of the possibility of interest rate hikes, and the uncertainty created by the Iran/US and Israel war.

On the other hand, there is currently an excess in the supply of physical gold in the market, and for the first time in a long time, the price of gold in our country has fallen below world gold prices. Since the beginning of the war, gold has been seeing its lowest levels. The fact that the increase in the dollar exchange rate has remained well below monthly inflation also creates a dollar-based pressure factor on gold.

Prof. Dr. Duran BÜLBÜL