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Fears Of Impending Interest-Rate Hike Tarnish Gold

Fears Of Impending Interest-Rate Hike Tarnish Gold by Dan Steinbock, Difference Group

Not so long ago, gold rose to new highs. Recently, it has suffered the most challenging losses since 1999. Rate hikes do not bode well for the gold in the near term, but what about in the medium-term?

AFTER climbing to US$1,206 per ounce in June, gold has suffered seven weeks of losses, the longest fall since 1999. After mid-July, gold prices plunged under US$1,090 as sellers in China appeared to offload the precious metal. That’s also when China’s announced gold reserves — though showing remarkable growth — proved significantly lower than market expectations.

As the Greek debt crisis seemed to stabilize, a calm returned to China’s A-share market and Fed Chair Janet Yellen delivered a seemingly upbeat assessment of the US economy, the glitter of gold no longer appeared attractive. Yellen’s preference for “sooner-but-slower” rate hikes indicated that the Fed was moving toward normalization.

As US non-farm payrolls climbed 215,000 last month and unemployment rate stayed at a 7-year low of 5.3 percent, gold rose close to US$1,100. That, however, was predicated on the assumption that the Fed would defer the interest rate hike beyond September. In the past two weeks, prices have been between US$1,080 and US$1,100. However, the impending rate...


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