The price of gold plummeted by more than six percent today, dropping to just under $4,500 per troy ounce (oz; 31.1 grams). Silver lost over 13 percent at one point, dropping to roughly $65.50 per ounce. The decline is driven by weaker prospects for interest rate cuts, which stem from expectations that a significant rise in energy prices will lead to higher inflation.
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Gold rebounds as Fed holds rates steady amid Middle East uncertainty
Later, gold and silver prices recovered some of their losses. Around 2:40 p.m. CET, gold was down approximately five percent at $4,565 per troy ounce, while spot silver lost less than ten percent and was trading near $68 per ounce. As expected, the U.S. Federal Reserve (Fed) left its benchmark interest rate unchanged on Wednesday at a range of 3.50 to 3.75 percent.
Fed Chair Jerome Powell also pointed to significant uncertainty regarding the economic impacts of the conflict in the Middle East. He predicted, however, that higher energy prices would cause inflation to rise, at least in the short term. According to Reuters, higher inflation could prompt the Fed to delay interest rate cuts. Lower interest rates are favorable for the price of gold because they mitigate its disadvantage relative to yield-bearing investments, such as bonds.
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Gold’s safe-haven appeal tested as strong dollar weighs, but $6,000 target remains in play
Investors typically view gold as a safe haven in times of political and economic uncertainty. After the U.S.-Israeli attacks on Iran began in late February, the price of gold climbed above $5,400 per ounce. Since then, however, it has fallen significantly, partly due to a stronger dollar. A stronger dollar increases the price of gold for holders of other currencies, which typically undermines demand.
However, Nitesh Shah, a commodities analyst at WisdomTree, noted that geopolitical risks will persist and put upward pressure on the price of gold. According to him, the price could climb to $6,000 per ounce by the end of the year.
Source: Reuters
