Gold Gains Ground on Expectations of Huge Interest Rate Hike

Last week, the price of gold advanced to its highest figure since last month as expectations for an increase in interest rates rose. It is expected that later this month, the U.S. Federal Reserve will hike interest rates in a bid to curb inflation. Higher rates of interest dampen nonyielding assets such as gold, because they increase the opportunity cost of holding bullion.

Meanwhile, the U.S. dollar diminished in value against its rivals, which made dollar-priced bullion less expensive for overseas traders. In a recent interview, Kitco Metals’ senior analyst Jim Wyckoff stated that the U.S. dollar index’s sharp drop supported the silver and gold markets.

Spot gold reached $1,716.28 per ounce, representing a roughly 1% increase. This was also observed in U.S. gold futures, which reached $1,727.40 per ounce in New York.

Silver also rose by 1.2% to reach $18.78 an ounce while platinum gained 0.1% to hit $879.82 an ounce and is headed for its biggest weekly gain since June. Additionally, palladium rose by 2% to reach $2,182.17 per ounce and is on track for its best week since July.

Earlier last week, the price of bullion stood at about $1,700 an ounce. Edward Moya, a senior market analyst at Oanda Corp., described this as the danger zone, because the price falling below this level would lead to a decrease in investor support. In a note, Moya explained that gold would probably see selling pressure hit $1,680 or thereabout, especially if consumer prices were higher than expected. He noted that a sharp decrease in pricing pressures would only offer the precious metal a modest boost.

Ross Norman, an independent analyst, argues that as the trading volume of gold on U.S. futures markets continues weakening and the gold market continues to see a steady reduction of ETFs, the move higher may not be sustained.

In the physical gold market, however, demand in various hubs in Asia continues to stand firm despite the lower prices. Currently, investors are waiting for America’s inflation data for last month, to be released. This comes after recent hawkish comments made by Federal Reserve chair Jerome Powell cemented expectations of a large hike in rates of interest.

Powell stated that the United States Central Bank needed to act forthrightly to get inflation under control, increasing the prospect of a 75-basis-point hike when it meets. It is expected that the European Central Bank will raise rates by the same amount next month.

These price movements offer extraction companies such as Newmont Corporation (NYSE: NEM) (TSX: NGT) an opportunity to register bigger gains on the market and position themselves for long-term engagement in the industry.

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