Last week, the price of gold reached $2,000 after data in the United States signified the economic toll of the Fed’s hikes in interest rates. The price of spot gold rose by 0.4% to reach $2,002.21 per ounce after a two-week low, which saw the metal’s price reach $1,969.10 an ounce in the last session.
In an interview, chief market strategist at Blue Line Futures Phillip Streible stated that a lot of stop losses were triggered once the precious metal breached the $2,000 mark. U.S. gold futures also climbed 0.4% to reach $2,014.60 an ounce.
This recent data shows that weekly jobless claims in America also increased last week, which suggests that the labor market is steadily slowing. In a statement, Edward Moya, a senior market analyst at OANDA, stated that jobless claims were increasing as the economy weakened, noting that this was more pronounced in some parts.
This is backed a Fed report from Philadelphia, which shows that factory activity in the mid-Atlantic region was lower than predictions. The new economic data also shows that benchmark Treasury yields fell while the U.S. dollar index declined by 0.2%.
Moya added that the hike in rates scheduled for June would need to be scrapped for gold to have a good run. It is expected that the Federal Reserve will hike rates by 25 basis points in May as per the CME FedWatch tool, before holding the rates steady for the rest of the year. Rate hikes decrease the appeal of non-interest-bearing gold by raising the precious metal’s opportunity cost.
St. Louis Fed chief James Bullard supports the Federal Reserve on this decision, explaining that raising interest rates was a good move as the latest data had shown inflation to be persistent as the broader economy continued to grow, albeit slowly.
This comes after New York Fed President John Williams stated that inflation was still high and the Federal Reserve needed to take action to lower it.
Inflation is affecting countries globally, not just the United States. For instance, the consumer price inflation in Britain was still double digits in March. On the other hand, euro zone inflation eased in March, but underlying readings are still high, which strengthens expectations for more rate hikes from the ECB and the Bank of England.
Matt Simpson, a senior market analyst at City Index, noted that hawkish comments from the European Central Bank, the Federal Reserve and Swiss National Bank combined with high inflation in the United Kingdom had investors wavering on their calls for rate cuts in 2023.
The rising price of gold is likely to be a boon to enterprises such as Royal Gold Inc. (NASDAQ: RGLD) as the better prices will benefit the bottom lines of these companies and their shareholders.
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