Gold prices buoyed as US interest rate rhetoric is dialled down

Both spot and future prices on gold were up 0.3% apiece during the morning trading session of 23 June, underpinned by fresh comments from US Federal Reserve chairman Jerome Powell. With Federal Reserve members recently ramping up expectations for multiple interest rate increases in 2022, Mr Powell has moved to calm investor uncertainty by insisting rates would not rise too fast.

In recent days, rising inflation rates stateside have been a cause for concern among investors. However, Powell insists that inflation will not be the only deciding factor in decisions on future interest rates. Powell’s comments sought to bring a sense of calm to the greenback, after the US dollar plunged to almost one-week lows. In addition, the spot price of gold had crashed 6% in the week beginning 14 June, with the potential for rising interest rates likely to move investors from commodities to other instruments given that bullion holdings pay zero interest.

In the past, trading on gold futures was reserved solely for institutional traders. However, the introduction of CFD futures has enabled retail traders to get involved with minimal margin requirements and trading costs. These futures prices and quotes mimic the underlying exchange, allowing retail traders to accurately trade the price moves of precious commodities like gold.

Source: Piqsels

David Meger, director of metals trading at High Ridge Futures, believes it is by no means a “foregone conclusion” that the Fed will look to increase interest rates or “reduce asset purchase” as fast as was suggested in its most recent meeting. Mr Meger described the gold market as benefitting from a “very accommodative environment” at present, with gold reaching heights not seen since August 2011, when investors sought commodities as a safe haven following the impact of the global recession.

Many gold analysts still believe the price of gold will exceed $2,000 per ounce by the end of 2021. This would be caused by something like a perfect storm for gold investors, whereby global economies are starting to reopen yet central banks and governments are still holding a firm rein on monetary policies to keep a lid on escalating deficits.

Ross Norman of Metals Daily believes that rapid economic recovery leads to a “demand-pull” which also causes “cost-push inflation”. Norman believes that a new high for the price of gold could hit $2,025 this year, with the stock markets “remaining vulnerable” and retail investors viewing gold as “the near-perfect antidote”.

Tyler Richey, co-editor at Sevens Report Research also believes the short-term looks good for gold while the Fed “allows inflation to run a little over target”. Richey is looking for more clarity on the Federal Reserve’s plans to “taper asset purchases” and steadily increase benchmark interest rates, as this will determine how long this bull run on gold could last.

It was one-way traffic on the price of gold for between 2018 and 2020, rising from $1206 in November 2018 to highs of $1975 in July 2020. Since the turn of the New Year, it has been moving in the opposite direction, with gold still a prime indicator of the general sentiment towards the world’s most valuable economies.