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Despite High Interest Rates, Gold Will Rise Next Year

Derek Wolfe

Updated: October 20, 2022

Gold central bank
Editor’s Note:

EDITOR'S NOTE: Gold prices looked like they were reversing toward the upside in late September and early October but prices began falling after reaching a high of $17.38 an ounce. According to bullion industry experts, gold prices will rise sharply next year. According to survey participants, Gold’s upward trajectory is expected to defy higher interest rates. If you look at it from the perspective of most banks and market analysts, not to mention Jeff Bezos’ warning to “batten down the hatches,” the worst of our recession is yet to come. And any easing of inflationary pressures is still generally uncertain. So, it isn’t surprising that investors are holding on to gold as a hedge against the geopolitical and global economic uncertainties that, by the looks of things, may only get darker.

Gold will rebound next year, despite higher interest rates, according to a survey of the bullion industry. Delegates gathered in Lisbon for the London Bullion Market Association’s annual conference expect prices to rise to $1,830.50 an ounce by this time next year, about 10% above current levels. The survey included the world’s top traders, refiners and miners.

Gold has fallen about 20% since coming close to a record in March following Russia’s invasion of Ukraine. Tighter monetary policy -- particularly by the Federal Reserve -- has weighed on the precious metal which bears no interest.

Still, some investors are holding onto bullion as a hedge against broader geopolitical and economic risks, from the war in Ukraine to Covid-19 lockdowns in China.

Gold was little changed today as investors assessed mixed signals including a slightly weaker dollar, rising Treasury yields and more hawkish commentary from a Federal Reserve policymaker.

Bullion has had a tepid week so far, ekeing out modest gains as the greenback’s strength -- a major headwind over recent months -- fades slightly. Still, the US currency remains a headwind as the Federal Reserve pursues an aggressive monetary policy to battle inflation.

“I tend to think that Fed hawkishness is largely now ‘in the price’," Philip Klapwijk, managing director of Hong Kong-based consultant Precious Metals Insights Ltd., said in an email. “That said, the scope for a near-term major rebound in gold prices is very limited while rates climb and the US dollar remains strong."

Atlanta Fed President Raphael Bostic reiterated that the bank is focused on cooling inflation that’s running at its hottest in four decades. Treasury yields traded near multi-year highs ahead of US housing figures for September and the Fed’s Beige Book due later Wednesday.

Gold was flat at $1,651.49 an ounce by 10:34 a.m. Shanghai time. Silver was little changed, platinum fell and palladium gained. The Bloomberg Dollar Spot index was steady.

Expectations of a large Fed interest rate hike were cemented following a red-hot U.S. consumer inflation print last week, with markets pricing in a 75-basis-point hike in November.

Rising interest rates and bond yields dim gold's appeal as they increase the opportunity cost of holding the non-yielding asset.

Originally published on Live Mint.

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