KEY POINTS
- Gold rose 0.4 per cent to $4,180.97 an ounce in early Asian trading on Monday.
- Traders reduced bets on a possible US Federal Reserve interest rate increase after comments by Chair Kevin Warsh.
- Stronger-than-expected US inflation data had previously raised expectations of higher interest rates and supported the dollar.
- Gold remains about 20 per cent below its level before the US-Iran conflict began in late February, according to the supplied report.
MAIN STORY
Gold prices rose on Monday as traders reduced expectations of a US Federal Reserve interest rate increase this month following remarks by Fed Chair Kevin Warsh.
Spot gold gained 0.4 per cent to $4,180.97 an ounce as of 7:35 a.m. in Singapore, recovering some ground after falling 0.7 per cent in the previous week.
The shift in market expectations followed comments by Warsh that traders interpreted as favouring the Federal Reserve keeping interest rates unchanged at its meeting next week. The probability of a quarter-point rate increase fell to less than 20 per cent, according to the supplied report.
Gold does not pay interest, making it less attractive when borrowing costs and interest rates rise. Expectations of lower or unchanged rates can therefore support demand for the precious metal by reducing the relative appeal of interest-bearing assets.
US inflation data released last week had initially strengthened expectations of a rate increase, supporting the dollar and putting pressure on gold. Warsh’s remarks subsequently interrupted the dollar’s gains.
Other precious metals also advanced on Monday. Silver rose 0.6 per cent to $57.33 an ounce, while platinum and palladium recorded gains. The Bloomberg Dollar Spot Index, which tracks the US currency against a basket of major currencies, was little changed after declining 0.3 per cent over the previous week.
Gold has remained above the $4,000-an-ounce level since August, supported in part by its appeal as a safe-haven asset during periods of geopolitical uncertainty.
However, the metal remains about a fifth below its level before the US-Iran conflict erupted in late February. The conflict had contributed to a sharp decline that pushed gold into bear-market territory earlier in the year.
THE ISSUES
Gold’s latest movement highlights the influence of US monetary policy expectations on precious metal prices.
When traders expect interest rates to rise, gold can face pressure because investors may favour assets that generate interest. Expectations that rates will remain unchanged can ease that pressure, although prices are also influenced by the dollar, inflation expectations and geopolitical developments.
The dollar’s performance is another important factor. A stronger dollar generally makes gold more expensive for buyers using other currencies, potentially reducing demand. A weaker dollar can have the opposite effect.
For Nigerian investors and businesses dealing in gold, movements in international prices can affect the dollar value of holdings and the cost of gold-related transactions. However, local prices in naira may also reflect exchange-rate movements, import costs and domestic market conditions.
WHAT’S NEXT
Markets will be watching the Federal Reserve’s meeting next week for guidance on interest rates and the direction of US monetary policy.
The Fed’s decision, together with subsequent inflation data and movements in the dollar, could influence gold’s near-term direction. Geopolitical developments may also affect demand for the metal as a safe-haven asset.
BOTTOM LINE
Gold gained as traders reduced bets on a US interest rate increase following remarks by Federal Reserve Chair Kevin Warsh. Whether the advance continues will depend partly on the Fed’s next decision, inflation trends, dollar movements and demand for safe-haven assets.
Source: Bloomberg
