Consistent efforts by the U.S. Federal Reserve to curtail inflation by increasing benchmark interest rates have dampened gold prices for months. Inflation around the globe is at an all-time high, caused by compounding issues such as rising energy and food prices as well as fiscal instability.
Interest rates and treasury yields play a critical role in determining gold prices, with even minor changes in interest rates and dollar values causing gold prices to fluctuate. High-interest rates raise the opportunity cost of holding gold bullion, which is nonyielding, and reduces its desirability among investors.
The fed recently raised benchmark interest rates by a quarter of a percentage point but indicated that an end to its monetary tightening policy is in sight. This, coupled with a dip in treasury yields and the greenback’s value, caused gold prices to rise. US gold futures went up by 1.7% to trade at $1,981 per ounce while spot gold XAU went up by 0.7% to $1,982 per ounce.
High Ridge Futures director of metals David Meger said the economy would still have relatively high inflation even if the fed stops raising interest rates. He noted that the rise in gold prices was also caused by a combination of high inflation levels, a weakening dollar and demand for safe haven investments.
Holders of nondollar currencies found it cheaper to hold gold as the greenback’s value dropped close to early-February lows. Furthermore, sliding benchmark government bond yields increased the appeal of zero-yield gold bullion to investors.
Gold prices hit a one-year high and were trading at more than $2,000 last Monday, mostly thanks to increasing demand due to the precious metal’s status as a safe haven asset, but later dipped below $2,000. Spot silver XAG prices also went up by 0.2% to $223.06 per ounce, and platinum XPT prices went up by 1% to $987.65 while palladium XDP dripped by 0.9% to trade at $1,437.64.
Analysts believe that gold prices will continue to trend positively if the fed halts its tightening policy or the ongoing banking crisis continues. The recent banking situation has seen several banks, including Silicon Valley Bank and Signature Bank, collapse in what has been dubbed the largest banking failure since the Great Recession. This crisis has caused the dollar to lose some customer appeal as people look for safer wealth-storage alternatives that are outside the regular banking system, such as gold.
Goldman Sachs believes that “fear-induced demand” is responsible for the sharp rise in gold prices.
The return to good times in the gold industry is likely to be welcomed by all industry actors, including companies such as Eloro Resources Ltd. (TSX: ELO) (OTCQX: ELRRF) that have projects nearing the production stage.
NOTE TO INVESTORS: The latest news and updates relating to Eloro Resources Ltd. (TSX.V: ELO) (OTCQX: ELRRF) are available in the company’s newsroom at http://ibn.fm/ELRRF
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