What's going on?

Gold is having a rough go of things lately: on Friday its price fell to a three month low and it�s now down 8% this year in US dollar terms (although it did rebound a little�bit on Monday).

What does this mean?

The recent sell off is largely because investors are now expecting the US Federal Reserve to raise interest rates at its December meeting. A report on Friday saying that the US added many more jobs than expected�has increased the likelihood of an interest rate rise. Gold is negatively affected by rising interest rates because gold itself does not pay any interest to its owner (unlike, say, a bond). So the �opportunity cost� of owning gold increases as the returns�of other investments go up (and rising interest rates cause bond yields�to rise). Also, rising interest rates increase the value of the US dollar, which causes gold to move down in price relative to the US dollar.

Why should I care?

1. The bigger picture: The market now thinks the Fed will raise interest rates in December. The exact expectation can actually be seen by something called the �implied Fed funds rate." It is saying that there is a 68% chance of an increase in December (it would be the first increase since 2007 � so it would be a big deal).
2. For you personally: Many advisors still advocate owning some gold. The consensus opinion is that gold will continue to go down in price in the near term. But the overall theory is that gold as an investment provides a �hedge� against stocks, such that it offers investors some protection in the event of a stock sell off. Indeed, gold went up when stocks sold off in August and September. There�s no guarantee, but if stocks sell off again, the price of gold should, in theory, rally.