Gold prices have reached their one week high on Tuesday because of mountain pressure on the dollar. Meanwhile, the soon to be held U.S Federal Reserve meeting has left many investors speculating about possible policies made by the central bank on interest rates.
It is widely speculated that the Federal Open market Committee (FOMC) will raise interest rates after its two-day meeting, which will be put into effect from next year. Investors believe that the resulting fallout and ongoing market volatility due to higher interest rates will create a spike in the value of gold of about $1,251.
The dollar’s position in Asian trade has grown weaker, which is why it is expected that the Federal Reserve will boost interest rates. This will increase the opportunity cost of holding non-yielding bullion because the dollar’s positioning in the trades market has a direct influence on the value of gold prices.
The Asian stock markets also fell on Tuesday while Wall Street stocks had lower interest rates, supporting gold’s rising position. Spot gold will also increase in value from $1,253 to $1,258 per 28 grams. The growing uncertainty in the market might just slow down the Federal Reserve’s attempts to tighten monetary policy for the next year.
Maxwell Gold, the Director of Investment Strategy at Aberdeen Standard Investments gave a telephonic interview to Kitco News, stating that there was a 71% chance of interest rate spikes, with one or two more rate hikes next year. He also said that the onset of the tightening cycle has resulted in markets having lower expectation levels for interest rate spikes.
This is in stark contrast to what happened a few months ago when markets were expecting four rate hikes in 2019. The price of gold has always been subjected to the dollar’s position in the trade market. Studying market trends helps investors decide if they should aggressively pursue the bullion or hold off. Gold is seen as a safe haven by markets, acting as hedge against the onslaught of larger interest rates.
Countries that rely on importing gold will also experience a noticeably large spike in bullion price movements due to their relatively fragile demand-supply situation.
For gold to exceed the $1,300 per 28 gram cost barrier, inflation will have to rise by above 3%. While the current dynamics of the US economy is headed to towards inflation, the element of uncertainty is still very strong.
Investment firms believe that alongside gold, silver will also trade from between $16 to $18 per 28 grams next year. Silver did disappoint many investors hoping to make gains because prices during the past year fell by about 14%. There is going to be a shorter supply of silver in the market, which will push its price beyond $18 an ounce.
As silver remains cheap compared to gold, investors will begin to see its value in the precious metal market next year.