Gold futures ended nearly 2% higher on Thursday to post their first gain in five sessions, buoyed by a drop in the U.S. dollar.
Investors deemed the first Federal Reserve interest-rate hike since 2018 as not much of a headwind to bullion in the near term, given high inflation in the E.U. and U.S. and the desire for a safe haven due to the war in Ukraine.
“Investor concerns of continued high levels of inflation, even as the Fed begins tightening, will likely continue to support gold prices,” said Jeff Klearman, portfolio manager at GraniteShares, which offers the GraniteShares Gold Trust (BAR), adding that although real yields are rising, they remain negative, also providing support for gold prices.
“In other words, the opportunity cost of owning gold remains negative, supporting gold prices,” Klearman told MarketWatch late Wednesday afternoon.
April gold
GCJ22,
rose $34, or 1.8%, to settle at $1,943.20 an ounce, after the contract on Wednesday posted a fourth consecutive decline, down 1.1%, marking the lowest most-active finish since Feb. 28, according to FactSet data.
May silver
SIK22,
also climbed by 91 cents, or 3.7%, to $25.616 an ounce, a day after losing 1.8%.
On Wednesday, the Fed said it would raise fed fund futures rates by a quarter percentage point to between 0.25% and 0.5% and it also laid out plans for ongoing increases in the Fed policy rate.
Shortly after the announcement, gold prices moved lower but markets then reversed, including gold, “as concerns arose that the growth story may falter before the Fed can get all their rate hikes in place, and real interest rates and the U.S. dollar softened,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.
“Markets continue to watch the interaction of supportive factors with headwinds,” he said. “Supportive factors include geopolitical risks from the Russia/Ukraine conflict, still very negative real interest rates, and investors seeking shelter from higher interest rates and resulting poor bond returns.” Headwinds include a stronger U.S. dollar and the “ongoing cyclical reopening and recovery from the coronavirus pandemic.”
Some commodity strategists expect the Fed interest rate hikes to actually be bullish for gold, given that some previous rate-hike cycles supported prices for the precious metal.
“I expect the situation in Ukraine to drive gold in the near term, but also expect the Fed’s rate-hike campaign to be bullish for the metal over the coming months, just as we saw in 2015 to 2016,” said Brien Lundin, editor of Gold Newsletter.
The most recent example of an initial rate hike from the Fed came in its December 2015 meeting, and gold rose strongly the next day and continued to rise strongly for the next six months, he told MarketWatch.
The rally for precious metal on Thursday came as the dollar was slumping, down 0.8%, as measured by the ICE U.S. Dollar Index
DXY,
A weaker dollar can make dollar-pegged commodities more appealing to overseas buyers.
In other Comex dealings, May copper
HGK22,
tacked on 2.2% to $4.702 a pound. April platinum
PLJ22,
rose 2.3% to $1,031.30 an ounce and June palladium
PAM22,
settled at $2,492 an ounce, up 5.3%.
