Despite pressure from a stronger U.S. dollar and rising bond yields, gold prices increased marginally on Friday. Investors saw major central banks’ choices to maintain their current interest rate policies as a sign that severe global economic pain is soon to come.
By 0350 GMT, spot gold was up 0.2% at $1,923.29 per ounce after seeing its worst daily decline since September 5. Additionally, U.S. gold futures increased 0.2% to $1,943.10.
The world’s largest central banks have given notice that they will maintain interest rates as high as necessary to contain inflation, despite the peak of two years of unprecedented global policy tightening.
According to Ilya Spivak, head of global macro at Tastylive, “the markets looked at central banks and said you’re not stopping hikes because inflation is beat, you’re stopping because you’re worried that global growth is about to stop.”
“There is a very strong sense that the legs of global growth are giving out.”
The expectation of higher U.S. rates for longer sent the dollar close to a six-month high, while benchmark 10-year Treasury yields rose to a 16-year high and stocks remained under pressure.
Investors typically purchase gold as a hedge against economic instability, but since bullion is priced in dollars and does not pay interest, higher interest rates tend to weigh on it.
According to the CME Fed Watch tool, markets have a 45% chance of one more rate hike by the Federal Reserve before next year and a 44% possibility of some easing in the first half of 2024.
The Bank of Japan’s decision to maintain its ultra-low interest rates was also considered by traders as they awaited later in the day’s important purchasing managers’ index (PMI) data from the UK, the US, and the euro zone.
In preparation for its best week in four, spot silver increased 0.4% to $23.47 per ounce.
Palladium increased 0.8% to $1,272.85 and platinum increased 0.7% to $925.77.