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Gold under pressure from Fed interest rate hike

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Analysis by PP Link Securities Business Manager Nhim Kosol

Gold under pressure from Fed interest rate hike

Content image - Phnom Penh Post

The Gold price on Monday hit a high of $1878.84 per ounce before falling to a Tuesday low of $1804.93, as investors awaited the US Federal Reserve’s interest rate decision on Wednesday.

According to the Wall Street Journal, rising inflation data, which is a challenge to the economy, is likely to lead the US Fed to a surprise move to raise interest rates by 0.75 per cent, higher than expected, at the meeting this week.

“The annual inflation rate for the US is 8.6 per cent for the 12 months ended May 2022, the largest annual increase since December 1981, and after rising 8.3 per cent previously, according to US Labor Department data published on June 10.

“The next inflation update is scheduled for release on July 13 at 8:30am ET. It will offer the rate of inflation over the 12 months ended June 2022,” reported US Inflation Calculator.

The Fed before its June 4 meeting signalled to the market that it was preparing to raise interest rates by 0.5 per cent this week, and planned to set the rate again at 0.5 per cent at its meeting in July.

But it also said its outlook depended on the economy evolving as expected. Last week’s inflation report from the Labor Department showed a rise in prices in May more than the central bank had foreseen.

The Fed raised interest rates by 0.5 per cent at its meeting last month, the first increase since 2000, away from the usual 0.25 per cent increase.

It should be noted that the Fed last raised interest rates by 0.75 per cent at a meeting in 1994, when it was rapidly raising interest rates to curb a potential rise in inflation.

According to forexfactory.com, the Fed is forecast to raise interest rates by 0.5 per cent to one per cent on Wednesday, June 15.

The US dollar will be in high demand as interest rates rise, and it is a good opportunity for investors not wanting to worry about high market risk to take a look at interest rate savings.

This could be a major factor for big investors to sell gold temporarily and wait to buy at a lower price.

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