2 hrs ago
US-Iran Tensions Increase Gold Volatility Ahead Of Fed Decision
Gold prices are moving up and down because tensions between the United States and Iran have pushed oil prices higher.
More expensive oil can make inflation rise.
If inflation stays high, the Federal Reserve may be less willing to lower interest rates and could consider raising them.
Higher interest rates and government bond yields can make gold less attractive because gold does not pay interest.
A stronger dollar can also make gold more expensive for buyers using other currencies.
These factors pushed international gold prices lower and contributed to a third straight weekly decline.
However, central banks, households in Asia and investors are still buying gold.
China added gold to its reserves for the 21st month in a row, while India saw stronger imports and investment demand.
The Federal Open Market Committee meeting on September 16 is an important next test for gold prices.
Gold fell about 1.50% to $4,408.90 an ounce in international trading.
Rising oil prices, Treasury yields and a stronger dollar are weighing on gold.
Markets raised the estimated probability of a September Federal Reserve rate hike to about 40%.
Central-bank buying, Asian household demand and gold ETF inflows continue to support prices.
The September 16 FOMC decision could determine whether gold faces further pressure or finds support.
- Who
- Gold markets, the Federal Reserve, central banks, Asian households and investors are involved; the article also discusses United States-Iran tensions.
- What
- Gold prices are under pressure as higher oil prices increase inflation concerns and strengthen expectations of tighter Federal Reserve policy.
- Where
- International markets and India’s MCX gold market are affected; the geopolitical tensions involve the United States and Iran.
- When
- The latest decline occurred after the previous week; the Federal Open Market Committee decision is scheduled for September 16.
- Why
- Rising oil prices may increase inflation, Treasury yields and the dollar, raising the opportunity cost of holding gold.
Gold Downside Risks
Gold Structural Support
Impact of oil prices
Gold Downside Risks
A sustained increase in oil prices could raise inflation, limit the Federal Reserve’s ability to ease policy and increase expectations of higher interest rates.
Gold Structural Support
The article says persistent fiscal concerns and continued central-bank purchases could limit gold’s downside despite pressure from oil-driven inflation.
Interest rates and the dollar
Gold Downside Risks
Higher Treasury yields, higher real yields and a stronger dollar increase the opportunity cost of holding gold and can make bullion more expensive for international buyers.
Gold Structural Support
Gold retains longer-term support from resilient physical and investment demand, including Asian household purchases and domestic gold ETF inflows.
Near-term versus longer-term outlook
Gold Downside Risks
If higher oil prices produce sustained inflation, gold could face further volatility and additional declines.
Gold Structural Support
Central-bank buying, Chinese gold ETF inflows and replenishment of Indian inventories could help preserve gold’s longer-term upward trajectory.
Key facts
- International gold price
- COMEX gold finished about 1.50% lower at $4,408.90 an ounce.
- Indian gold price
- MCX gold ended the previous week at ₹1,52,784 per 10 grams.
- Key policy date
- The September 16 Federal Open Market Committee decision is identified as a crucial trigger.
- September hike probability
- Markets had raised the estimated probability of a September rate hike to around 40%.
- China’s gold purchases
- China’s central bank added 20 tonnes to its reserves in July, extending its buying streak to 21 consecutive months.
- India’s gold imports
- India’s gold imports nearly doubled in value to $4.16 billion in July.
- August performance
- Gold rose from about $4,000 to roughly $4,650 an ounce during August, a gain of approximately 14%.
Quotes
Ponmudi R
CEO at Enrich Money
“Gold rate today is on edge as another surge in oil prices fed into inflation expectations and pushed markets to sharply raise the odds of a US Fed rate hike at next week’s US Fed meeting, said Ponmudi R, CEO at Enrich Money.”
businesstoday.in
“The resulting pressure on precious metals drove gold and silver into their third consecutive weekly declines, although both staged a notable rebound on Friday despite a hotter-than-expected headline inflation reading.”
businesstoday.in
Sources
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