Gold prices rose on Thursday, supported by lower dollar and U.S. Treasury yields, after the Federal Reserve’s first hike in borrowing costs in three years came as no surprise. Spot gold was trading at $1,940 at the time of writing, up 0.068 percent daily. U.S. gold futures were up 1.75% to $1,942.40.
“People will find that holding gold is still good”
cryptocoin.com As we also reported, the US central bank increased interest rates by 25 basis points on Wednesday. However, as the increase was on the expected line and against the backdrop of rising inflation, it did not diminish the attractiveness of gold as an inflation hedge. According to independent analyst Ross Norman, a “sell the rumor, buy the truth” situation occurred as gold was priced in by bad news. The analyst makes the following assessment:
While the current situation seems illogical, since rising interest rates should have a negative impact on gold prices, it confirms our claim that we have an inflation problem.
Rising US interest rates tend to increase the opportunity cost of holding non-yielding, dollar-priced bullion. While the Fed has laid out an aggressive plan to drive up borrowing costs next year, gold prices have risen, while yields on 10-year U.S. Treasuries have eased as investors are apparently pricing in a stronger rate hike. Brian Lan, managing director of GoldSilver Central, says the Fed’s ‘comfortable’ response to rising inflation has helped gold, commenting:
People will find that holding gold is still fine. Because 0.25% of the Fed isn’t even rocking the boat.
Ross Norman: The legs of this bull run
Analysts also say that safe-haven gold investors will continue to closely monitor the political and economic risks posed by Russia’s invasion of Ukraine, which is in its fourth week. Ross Norman explains:
If you had to look at just one thing to encourage you that this bull run has legs, you’d be looking at ETF flows, and it’s really positive.
The holdings of the SPDR Gold Trust, the world’s largest gold-backed ETF, rose 0.8% to 1,070.53 tons on Wednesday, the highest since March 2021.
Gold prices tend to rise as the cycle starts, according to Commerzbank
Despite the US Federal Reserve’s interest rate hike, gold prices rose to the $1,940 region. Six more increases are expected this year. This is what the projection looks like for the coming months. So why are gold prices still climbing today? According to the report of Commerzbank economists, looking at previous rate hike cycles shows that gold tends to rise when the cycle starts.
The Fed increased the interest rate by 25 basis points. Fed Chairman Jerome Powell also raised the possibility of further rate hikes. Fed members’ forecasts point to seven rate hikes by the end of the year, including yesterday. Commerzbank economists make the following assessment:
Looking at previous interest rate hike cycles, gold tends to rise when the cycle begins. Same thing seems to happen this time. But it’s hard to compare with past rate hike cycles given the war in Ukraine. After all, this is an additional factor that signals an increased demand for gold.
Pablo Piovano: Gold prices supported around $1,900
Open interest on gold futures markets contracted for the third consecutive session on Wednesday, this time down by about 3.6k contracts, this time taking into account improved figures from CME Group. Volume followed suit and fell by around 34.2K contracts and resumed the downtrend after the previous daily formation.
Gold prices rebounded from the $1,900 region and ended the session with modest gains on the Fed day. However, the rebound remains amid declining open interest and volume, hinting at the idea that it may be short-lived in the near term, according to market analyst Pablo Piovano.
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