Rumours of pause in Fed rate hikes put shine back on gold
Julie Tay
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Bloomberg
GOLD may rise on speculation that the US Federal Reserve will stop raising interest rates, boosting the appeal of the precious metal against the dollar.
Gold for immediate delivery jumped 7,2% in the past four days as the Fed indicated it may take a break after raising its main rate for the 17th consecutive time on June 29.
Higher rates curb demand for non-interest-bearing assets such as gold.
“The Fed’s pausing interest rate hikes is positive for gold,” said Mario Innecco, futures broker at Man Financial. “Gold may reach a new high by year end.”
Gold for immediate delivery dropped $1,86, or 0,3%, to $621,63/oz in late afternoon trade in London.
Earlier, it traded at $624,08. Bullion on Monday rose to $625,28, its highest since June 7. It reached a 26-year high of $730,40 on May 12.
There was no trading in the US yesterday because of the Independence Day holiday.
“There will be more direction tomorrow when markets in the US reopen,” said Innecco.
“The Chicago Board of Trade (CBOT) is gaining quite a lot of volumes now as it is more transparent.”
CBOT has a 44% share of gold futures traded in North America.
“Volumes are very low today,” said Wolfgang Wrzesniok, head of marketing and sales at Heraeus Metallhandels in Hanau, Germany, which owns five gold refineries.
“Gold’s trend is positive, but we are also seeing some profit-taking and trade-ins from retail customers at these prices.”
The euro traded near a four-week high against the dollar on speculation that evidence of faster inflation would spur the European Central Bank (ECB) to raise rates faster than in the US.
Gold often moves in the opposite direction of the US currency.
The dollar traded at 1,2794 to the euro in London, compared with $1,2803 in New York late Monday.
The median of 23 forecasts in a Bloomberg survey shows economists expect the ECB to raise its benchmark rate to 3% on August 31, after three increases since December.
Higher crude oil prices and concerns that US trade and budget deficits would widen, also support gold.
“All the key parameters point to an underlying strength,” said Arthur Hood, MD of Lihir Gold, Guinea’s second-biggest prod-ucer of the metal .
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