Gold Prices Drop as Dollar Strengthens on Interest Rate Hike Expectations
Gold prices have been falling this week due to the strengthening of the US dollar after Federal Reserve Chief Jerome Powell reiterated that more interest rate hikes were in the offing. Spot gold was up 0.4 percent to $1,921.29 per ounce by 1543 p.m. Saudi time, yet stayed close to a three-month low hit earlier in the session. Prices are down 1.8 percent for the week. US gold futures gained 0.4 percent to $1,931.40. The dollar was up 0.5 percent and bound for its first weekly rise in four, making bullion more expensive for holders of other currencies.
Interest Rate Hikes Affect Gold Prices
Interest rate hikes raise the opportunity cost of holding non-yielding bullion. Powell, in his second day of testimony, said the Fed would continue to raise interest rates at a “careful pace.” The market now sees a 75 percent chance of a 25 basis-point rate hike in July, with cuts seen only 2024 onwards. “While we do not see the need for further rate increases, we do not expect an increase in gold and silver investment demand either, due to the resilience of the US economy and the high levels of interest rates, which are offering other alternatives to safe-haven seekers,” said Carsten Menke, head of next generation research at Julius Baer.
Silver Prices Also Affected
Spot silver rose 0.5 percent to $22.35 per ounce, but was set for its biggest weekly drop since October 2022. Platinum was down 0.3 percent to $920.68, on course for its worst week since August 2022. The strength of the dollar and concerns about China’s industrial sector and economy as a whole have contributed to silver’s decline, said Edward Gardner, commodities economist at Capital Economics.
Outlook for Gold Prices
“Gold is clearly an asset in demand but taking a short-term view on where the price is today, we still think there’s a little bit (of) room for gold to underperform,” said Gardner. While interest rate hikes affect gold prices in the short term, the long-term outlook for gold remains positive. Gold is a safe-haven asset that investors turn to in times of economic uncertainty. With concerns about inflation, geopolitical tensions, and the ongoing COVID-19 pandemic, gold is likely to remain a popular investment choice for investors looking to diversify their portfolios.
Conclusion
Gold prices have been falling this week due to the strengthening of the US dollar after Federal Reserve Chief Jerome Powell reiterated that more interest rate hikes were in the offing. Interest rate hikes raise the opportunity cost of holding non-yielding bullion. While interest rate hikes affect gold prices in the short term, the long-term outlook for gold remains positive. Gold is a safe-haven asset that investors turn to in times of economic uncertainty. With concerns about inflation, geopolitical tensions, and the ongoing COVID-19 pandemic, gold is likely to remain a popular investment choice for investors looking to diversify their portfolios.