Gold prices inch up on moderate Fed rate hike expectations

Gold prices have started inching up to touch a 4-month high on expectations of moderate rate hike by the US Federal Reserve on December 13-14.

The Fed has increased interest rates by 3.75 per cent so far this year and the most recent four rate increases were each of 0.75 per cent. The market expects the rate hike this time around will be moderated to 0.50 per cent on the early signs of inflation cooling down. From a high of 8.3 per cent in August, annual inflation fell to 8.2 per cent in September and settled much lower at 7.7 per cent in October. However, the US Fed rate hikes are targeted to bring down inflation to under 2 per cent.

Sharp move

After trading in a narrow range, gold prices gained ground in the past 2-3 weeks. On Monday, spot gold was up 0.5 per cent at $1,807.21 per ounce after climbing to its highest level since July 5 at $1,808.20 earlier in the session. US gold futures gained 0.6 per cent to $1,819.60. In India, gold prices rose 6 per cent to ₹53,854 per 10 grams, from ₹50,691 as on November 1.

Chirag Mehta, CIO, Quantum AMC, said the international gold prices jumped 7 per cent last month to close at $1,753, the highest monthly increase in the last 18 months. The sharp up-move was underpinned by the lower-than-expected US inflation print for October and a higher unemployment rate, which may lead to a less aggressive monetary policy by the Federal Reserve. Though the quantum of rate hikes would be less, there would still be a hike of at least 100 basis points more in the next three months.

“Our medium- to long-term view on gold remains bullish (with short-term volatility) because of the recessionary concerns surrounding the global economy. Gold has historically performed better than risk assets during such times. A combination of recessionary conditions forcing the Fed to ease with inflation staying somewhat elevated will be extremely bullish for gold,” he said.

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