Gold Prices Decline After The Fed Raises Interest Rates

INDUSTRY.co.id - Jakarta, Gold again lost its charm after the price has decreased. In trading Thursday (21/8/2018) morning, the price of gold for delivery in August 2018 on the Commodity Exchange back to reach the lowest point this year in the position of US $ 1,271.20 per troy ounces. This is a 0.26% decline compared to Wednesday's trading (20/8).

In three trading days, the decline accumulated 0.69% despite rising above the level of US $ 1,300 per troyounces, later slipping again to levels below US $ 1300 on the weekend until now.

Gold prices are increasingly losing charm after the US Central Bank (the Fed) raised interest rates. As is known, the US Federal Reserve's benchmark interest rate rose by 25 basis points to 1.75% to 2.00% on Wednesday (14/6).

The rate hike is the second in 2018 and the seventh since late 2015. The Fed rate increase is also predicted to reach four times this year.

In a statement, the Central Bank explained the policy to raise interest rates on the grounds of realization and expectations of labor market conditions and inflation.

According to the Fed the US labor market has "continued to strengthen" and economic activity has "risen at a steady rate", with household spending rising and business investment growing stronger.

The Fed also said both overall inflation and so-called core inflation for goods other than food and energy had moved closer to 2%. This suggests that Fed officials are increasingly confident about inflation reaching its target of 2%.

On the other hand, trade war does not cause gold prices to strengthen. Investors prefer safe-haven US dollars and US Treasuries to divert funds from riskier assets. This causes the US dollar to strengthen while the price of gold trun.

"High interest rates and a stronger dollar keep gold prices stuck, at least for the short term," Will Rhind, CEO of GraniteShares told Reuters.

Simona Gambarini, analyst at Capital Economics, said high interest rates cause gold that has no yield to be less attractive. "The decline in the price of thin gold alone because of safe-haven demand is still there," he said.

Earlier, Nicolas Mathier, Managing Partner of Global Precious Metals, estimates that gold will trade higher this year. The reason, investors hedge against risks in the stock market and geopolitical uncertainty by US President Donald Trump.

"Gold is primarily purchased as a hedge against systematic risk or counter-party risk," Mathier said, as quoted by Bloomberg.

According to him, last year, equity markets are booming. While this year, equity markets will be the same, booming, but with a lot of volatility, which does not happen in 2017.

"Investors' interest in gold is now greater than last year, and prices may touch the highest level of US $ 1,425 per troy ounce this year," Mathier said.

Last year, the average spot gold price in the range of US $ 1,259 per troy ounces. Meanwhile, this year, the average price of gold is estimated at the level of US $ 1,385 per troy ounce.