Prospect of more rate hikes dims gold’s appeal

Gold prices recorded another weekly decline as looming interest-rate increases reduced investor appetite, offsetting the safe-haven appeal of gold in the face of growing worries about a recession.

The afternoon fixing on Friday in London was $1,825.45 an ounce, compared with $1,841.55 a week earlier. Thai selling prices were quoted at 30,700 baht per baht-weight (15.2 grammes), unchanged from the previous week.

“There is a confluence of forces driving gold prices in both directions, forcing it to remain in a small range,” said Daniel Ghali, a strategist at TD Securities. “We have risks of a recession and signs of an imminent slowdown in global growth driving inflows into gold as a safe haven. On the other hand, we have the Fed’s commitment to fighting inflation contributing to a significant rise in real interest rates.”

Bullion is considered an inflation hedge but higher US interest rates increase the opportunity cost of holding it.

Commerzbank analyst Carsten Fritsch believes gold has some “minor upward potential” to head for $1,900 in the second half, but further US rate hikes will limit the upside.

Standard Chartered analyst Suki Cooper expects gold to track real yields, pressuring prices lower — “albeit with a higher floor given the physical market response to lower prices”.

In the physical market, Indian dealers offered bigger discounts to lure retail buyers as the wedding season concluded, while some consumers in China bought gold to hedge against growing economic concerns.

Discounts of $8 an ounce were quoted over official Indian domestic prices, compared with $6 a week earlier.

In Shanghai, trading volumes were modest, but people still like to buy some gold as a safe-haven investment, given inflation and geopolitical concerns, said Peter Fung of Wing Fung Precious Metals.

“The resilience of the yuan may encourage growing interest among local investors to reload gold inventories,” added Bernard Sin, regional director for Greater China at MKS.