Gold ended Friday’s trading session in the green, despite the strength in the US dollar. Bidness Etc explains why
Gold spot prices traded in the green on Friday, despite the strength in the US dollar. The strength in the valuable metal came as a result of expectations that an interest rate hike would come later than earlier expected, keeping the demand for gold up.
Gold spot prices ended the trading session at $1133.60 per troy ounce, 0.76% higher than the opening price. During the session, the metal traded between a high of $1140.90 per troy ounce, and a low of $1123.95 per troy ounce. Following this, the SPDR Gold Trust (ETF) (NYSEARCA:GLD) had traded up by 0.90% during Friday’s trade.
The strength in the metal came as a result of the uncertainty surrounding the interest rate hike in the US, which is expected to lower the demand for the non-interest bearing investment. Expectations of an interest rate hike in September this year were lowered when China announced an interest rate cut for the fifth time since November this year, amounting to 25 basis points.
Prices of the metal have followed an upward trend in the recent past, due to the weakness exhibited by the Chinese equity markets, and the subsequent spill-over into other equity markets, which led to Investors parking their investments into gold, considered to be a safe-haven investment. Since the beginning of August, gold spot prices have traded up by 3.14%, gaining $34.49 per troy ounce during the period.
Theoretically a strong US dollar lowers the demand for the greenback-denominated metal. This was not true for gold spot prices during yesterday’s trade, as the US dollar gained 56 bps against a basket of six currencies.
The strength in the US dollar came as a result of the statement from Fed Vice Chairman, Stanley Fischer, hinting an interest rate hike in September this year. Mr. Fischer said at the sidelines of the central banking symposium in Wyoming on Friday that while the Chinese economic turmoil had dampened the possibility of an interest rate hike in September, he would keep the issue alive when the Federal Reserve meets in September.
Bidness Etc, much like the sentiment in the market, believes that the September interest rate hike is highly unlikely. Recent inflation data from the US Bureau of Economic Analysis supports the speculation, with the Core Personal Consumption Expenditure-Price Index for the month of July increased by 1.2% year-over-year (YoY), compared to the 1.3% reported for the earlier month.
Fed Chair, Janet Yellen, has highlighted that getting the inflation rate in the US up to 2% would be a key deciding factor for an interest rate hike. July’s inflation data is likely to tip the balance towards an interest rate hike not coming in September.
Silver spot prices had followed a similar path during yesterday’s trade, gaining 0.73% of its value during the day. The precious metal closed the trading session at $14.60 per troy ounce yesterday, after having traded between a high of $14.69 per troy ounce and a low of $14.39 per troy ounce. As a result of this, the iShares Silver Trust (ETF) (NYSEARCA:SLV) had gained 0.87% during the day.
We anticipate that precious metals, such as gold and silver, will continue showing strength in the foreseeable future. This belief is backed by Bidness Etc’s expectations of weakness in the Chinese and Japanese markets to persist, and an interest rate hike in the US being pushed further into the year, if one comes at all this year.
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