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Gold slips to near one-year low on looming rate hikes

July 21, 2022By Reuters

July 21 (Reuters) – Gold prices fell on Thursday to their lowest in nearly a year, as prospects of more interest rate hikes by major central banks to combat soaring inflation weighed on bullion’s appeal.

Although gold is seen as a hedge against inflation, rising interest rates increase the opportunity cost of holding bullion, which pays no interest.

Spot gold was down 0.3% at USD 1,691.84 per ounce by 0313 GMT, after falling to its lowest since early August 2021 at USD 1,689.40 earlier in the session.

US gold futures fell 0.6% to USD 1,690.40 per ounce.

“Clearly inflation expectations are receding because the Fed and other central banks are embarking on aggressive tightening regime, which is undermining gold’s appeal,” said Ilya Spivak, a currency strategist at DailyFX.

The European Central Bank is set to raise interest rates for the first time in 11 years on Thursday, with a bigger-than-flagged move seen as increasingly likely as policymakers fear losing control of runaway consumer price growth.

The US Federal Reserve is widely expected to raise rates by 75 basis points at its policy meeting next week.

British inflation in June surged to a 40-year peak, bolstering chances of a half-percentage-point Bank of England rate hike next month.

“Gold broke below USD 1,700/oz as investors continue to reduce exposure to the sector ahead of central bank meetings,” ANZ analysts said in a note.

Indicative of sentiment, holdings of SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, fell 0.3% to 1,005.87 tonnes on Wednesday, their lowest since January.

Capping gold’s losses, the US dollar slipped 0.3% against its rivals. A weaker greenback makes gold cheaper for holders of other currencies.

Market participants are also keeping a close watch on the resumption of gas flow along the biggest pipeline from Russia to Germany.

Elsewhere, spot silver fell 0.6% to USD 18.54 per ounce, platinum dipped 0.5% to USD 854.03, and palladium rose 0.3% to USD 1,867.20.

(Reporting by Brijesh Patel in Bengaluru; Editing by Subhranshu Sahu)

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