Gold prices increased on Monday as investors reduced their bets on the Federal Reserve raising interest rates by 100 basis points this month and assisted by a small decline in the value of the US dollar.
As of 04:53 GMT, spot gold was up 0.4% to $1,713.91 per ounce after dropping last week to its lowest level in in a year. The price of US gold futures increased by 0.5% to $1,712.70.
As the dollar dropped from its recent near-20-year high, bullion priced in dollars became more affordable for customers using foreign currencies.
According to Stephen Innes, managing partner at SPI Asset Management, “the market scaled back the concept of a 100-bp rate hike when Friday’s University of Michigan inflation component came in weaker.”
According to the preliminary results of the University of Michigan’s consumer survey for July, consumers expect inflation to average 2.8 percent over the next five years, the lowest rate in a year and down from 3.1 percent in June.
“Central bank hawkishness has already been factored in, and with gold holding on to the $1,700 per ounce mark last week, we may see shorts being squeezed a little as hawks might be dissatisfied with the Fed only rising rates by 75 bps next week,” says the author.
In order to tackle the rising cost of living, Fed officials indicated on Friday that they would stick to a 75-bp rate increase at their meeting on July 26–27.
At its policy meeting later this week, the European Central Bank is anticipated to raise rates by 25 basis points.
Despite the fact that gold is seen as a hedge against inflation, rising interest rates reduce the appeal of metal, which pays no interest.
The largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, reported that its holdings decreased by 0.3% on Friday to 1,014.28 tonnes.
Spot silver increased by 0.6 percent to $18.80 per ounce while platinum increased by 1.1 percent to $859.50 in other markets. After rising by around 3 percent earlier, palladium increased by 2.7 percent to $1,878.29.