On forecasts of a mild rate hike by the U.S. Federal Reserve on December 13–14, gold prices have begun to nudge up to a 4-month high. The Fed has raised interest rates by 3.75 percentage points so far this year, with each of the last four rate increases totaling 0.75 percentage points. On the basis of early indications of inflation slowing down, the market anticipates that the rate increase this time will be lowered to 0.50 percent. The annual inflation rate peaked in August at 8.3 percent, then dropped to 8.2 percent in September, and finally settled at 7.7 percent in October.
However, the U.S. Fed’s rate increases are intended to reduce inflation to below 2%. The past two to three weeks have seen gold prices rise after trading in a constrained range. On Monday, spot gold was up 0.5% at $1,807.21 per ounce after reaching $1,808.20 earlier in the session, its highest level since July 5. American gold futures increased by 0.6% to $1,819.60. Gold prices in India increased 6% to 53,854 per 10 gm from 50,691 as of November 1.
The price of international gold increased by 7% last month to close at $1,753, the largest gain in the previous 18 months, according to Chirag Mehta, CIO, of Quantum AMC. The October U.S. inflation reading was lower than predicted, and the unemployment rate was higher than expected, which may indicate that the Fed may adopt a less aggressive monetary policy going forward.
These factors supported the sudden upward movement. Although the rate increases would be smaller in magnitude, there would still be an increase of at least 100 basis points in the next three months. “Due to the recessionary issues affecting the global economy, our medium- to long-term outlook on gold remains bullish (with short-term volatility),” he said.