Gold Remains Firm on Rate Hike Expectations

Gold prices remained firm in the early hours of trading on Wednesday. The stable prices for the precious metal were supported by expectations in the market that the United States Federal Reserves would lessen the likelihood of rate hikes during next year.

While gold remained firm within a stable range, palladium traded at a premium to the precious metal. Prices for spot gold inched up by some 0.1 percent to reach the cumulative price of $ 1810.80 during the start of the day. Gold futures increased by 0.2 percent to reach 1810.82 per ounce. Spot palladium picked up on the momentum from last session to rise by 0.2 percent and trade at $1,246.30. Palladium prices had peaked by a massive 2 percent during the previous session.

The United States dollar established a one-month high against peers, as it increased due to a rebound in the United States yields. The increase in the dollar index can also be attributed to the weakening pound, which received a battering because of the uncertainty surrounding the Brexit deal.

SPDR Gold Trust, which is one of the world’s largest ETF backed by gold, mentioned that holdings in the precious metal had increased by 0.43 percent. The holdings that were 760.32 tonnes as of Monday, have now reached a total of 763.56 tonnes on Tuesday.

Expectations regarding rate hikes have a direct impact on gold and other bullion, because investment in the precious metals is reliant on how much yield the currency gives. Higher interest rates mean that investors heading towards investment in currency will get a better yield. This would ultimately increase the opportunity cost of holding on to non-yielding investments such as gold and precious metals, and push investors into leaving them, heading towards the greener pastures offered by currency trading.

ICBC Report Suggests that Gold to Peak at $1,900 in 2022.

A report drafted by ICBC has suggested that gold will peak at $1,890 by the third quarter of 2022. The Commercial Bank of China, which is the largest in the world, has released a report suggesting that gold will steadily rebound from the disappointing year it had in 2018.

 “For 2022 and 2023, we now forecast respective year average prices of $1,893/oz and $1,900/oz,” the report mentioned.

“For the large part of this year, gold has maintained its correlation with the DXY index and has generally outperformed emerging market (EM) FX but underperformed developed market (DM) FX. This fits with 2018’s market stresses having been more concentrated in EM than DM,” analysts wrote.

“Underpinning these base case forecasts is a view that the current dollar bull market is peaking, which will provide gold with room to rally over the coming year. Macroeconomic uncertainty should see the FOMC slow its pace of rate hikes at the same time as increased financial market volatility adds to the attractiveness of gold’s defensive characteristics, creating near term upside for the yellow metal. Our base case is for a hike in December to be followed by two further hikes in 2019, [which] … should deliver a marginally weaker dollar,” the report analyzed.