Gold Prices Hold Steady in Narrow Trading Range Amidst Fed Rate Hike Speculation
Gold prices remained in a narrow trading range on Wednesday, as investors awaited the outcome of the U.S. Federal Reserve’s upcoming meeting, which will determine the trajectory of its rate hikes. The price of spot gold edged up 0.1% to $1,903.64 per ounce as of 0316 GMT, while U.S. gold futures eased 0.1% to $1,908.60. The subdued movement in gold prices came amidst a softer dollar and rising U.S. Treasury yields, as investors weighed the impact of the Federal Reserve’s rate-hike trajectory.
The Federal Reserve is expected to increase its benchmark rate by 25 basis points next week, with another hike anticipated in May. This move comes as the latest government report reveals that U.S. inflation remained high in February. The consumer price index rose 0.4% last month, after a 0.5% acceleration in January. The CPI increased by 6% in the 12 months through February.
As a hedge against inflation, bullion is often considered a safe haven asset. However, the opportunity cost of holding the non-yielding asset increases when interest rates rise, aimed at bringing down inflation. OCBC FX strategist Christopher Wong stated, “Some degree of relative calm on U.S. banks and an overnight rise in Treasury yields may temporarily reduce demand for safe haven proxies” such as gold.
The recent development with some U.S. banks, combined with concerns of a long-lasting banking crisis easing, may also impact investor demand for gold. Analysts at ANZ noted, “Investor allocation to gold remains low,” but they expect the banking turmoil to “reinvigorate investor demand over the longer term.”
The price of gold remained within a tight range amidst speculation about the Federal Reserve’s rate-hike trajectory, as investors weigh the impact of rising U.S. inflation and Treasury yields. While gold is typically viewed as a safe haven asset during times of uncertainty, the opportunity cost of holding the non-yielding asset may increase when interest rates rise. Analysts expect that the recent development with U.S. banks may temporarily reduce demand for safe haven proxies such as gold, but that the long–term outlook for the precious metal remains positive.
