Gold prices have been on the rise ever since speculation that the US Federal Reserve will continue to increase interest rates. The value of spot gold jumped by 0.9 percent to $2,254.06 for every 28 grams, recovering from a steep decline since last month.
The precious metals market as a whole has been on the rise, including palladium which increased by 0.57 percent to $1,267.20 per 28 grams and silver which rose by a modest 0.8 percent to $14.72 per 28 grams. Platinum also increased by 0.15 percent to $787.24 per 28 grams.
Financial analysts speculate that the US Federal Reserve will spike interest rates 2 times instead of 3 which was the more popular opinion.
After yesterday the Federal Reserve sealed the deal by raising interest rates despite calls by President Donald Trump to hold off. This shook US stocks and bond prices which slumped hard. But this isn’t the end of the road for rising interest rates, since the Fed has signaled at further rate hikes at a gradual pace.
While it isn’t good news for Wall Street, it is most definitely good news for the bullion industry which has been benefitting from recovering gold rates for several weeks now.
Interest rates have been increased by 25 basis points on Wednesday, but this move doesn’t come as a surprise to financial analysts who have been keenly anticipating the central bank’s decision to raise interest rates. It was not expected for the Federal Reserve to continue its plan on tightening monetary policy, even if it throws the global economy in disarray due to the ensuing uncertainty.
The dollar’s position fell by 0.6 percent, and is speculated to grow weaker still, which is exactly why central bank decided to spike interest rates. Meanwhile the relatively less fragile Asian markets aren’t faring any better as their shares plummeted, it isn’t helping that the Fed wants to push for a more aggressive policy in the future.
Not wanting to get swept under the uncertain shares market, many investors are turning to government bonds.
Gold prices have always been subject to the dollar index, and as interest rates rise, it puts pressure on the dollar, bolstering its value. This makes gold more expensive for investors using currencies other than the dollar.
According to Ilya Spivak, who is a currency strategist at DailyFX, the position of gold is still largely vulnerable and will remain so until next year, but supporting its position is the Fed’s determination to adopt more dovish measures to tighten monetary policy.
Markets in Shock
Investors are disappointed and held on to the hope that fears of uncertainty would prevent the Fed from spiking interest rates. But this all changed yesterday when the central bank chose not to take the moderate approach by leaving interest rates alone.
This aggressiveness will push gold prices to higher levels, which is good news for investors who have mining shares.