Gold Prices Plunged Over The Fear Of A Rise In Interest Rate By The U.S. Federal Reserve

Gold prices fell in the international market, with COMEX Gold Futures sliding from the level of $1307.10 (Day’s high on 11th April 2019) to the level of $1289.10 (Day’s low on 11th April). The prices fell below $1300 mark after a three days consecutive rally from $1291.80 (Day’s low on 8th April) to the level of $1304.00 (Day’s high on 10th April) amid extension in Brexit deadline.

The factor which exerted pressure on gold prices was the improvement of Unemployment data in the United States domestic market and high figures of Producers Price Index. The U.S. Weekly Unemployment Claims stood at 196k, against the market expectation of 210k, the fall in Unemployment claims supported the dollar prices, which in turn, exerted pressure on gold prices and the prices plunged below $1300 mark.

Dollar Index (DXY) rose from the level of 96.88 (Day’s low on 11th April) to the level of 97.19 (Day’s high on 11th April), the rise in dollar prices prompted the market participants to sell their stake in the non-interest bearing gold, as a rise in dollar makes it hard for people to hold the dollar-dominated asset, which moves opposite to dollar.

Apart from the improvement in Unemployment the Producer Price Index (PPI) witnessed a rise, the Core PPI for March 2019 stood at 0.3% as compared to the market expectation of 0.2% and previous 0.1%. The rise in the price prompts producer to pass on the high price to the customers of the domestic economy, which in turn, coupled with low inflation suggests an improvement in the economy. The improvement signs applied pressure on gold prices.

However, the Core PPI includes 40% make up from Food and Energy’; thus, the market could not rely on it very much and buying activity in the gold resumed and gold recovered from the level of $1293.05 to the present level of $1297.

The significant factor which dragged the gold prices down was the comments from Vice Chairman of Federal Reserve, Richard Clarida, who sees that the economic conditions are improving in the domestic market. Mr. Clarida mentioned that though the United States economy is below the last year growth of 3% but coupled with the fact that the Unemployment rate is at a 50-year low and inflation is around the goal of the Federal Reserve, Mr. Clarida reiterated that the U.S. economy is in a good place.

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When asked about the U.S. president Donald Trump’s demand on decreasing the interest rate, Mr. Clarida said that the current environment cannot tolerate a decline in the interest rate and should be kept unchanged until the economy revives. However, Mr. Clarida did mention that if the global economy revives, there is a chance of interest rate increase, which was previously halted by the FED over the looming global economy.

When asked about the global slowdown impact on the U.S. economy, Mr. Clarida addressed that the slowdown does hamper the United States exports and which in turn, exerts pressure on the U.S. domestic economy.

The hope of interest rate increase if the global economy revives exerted the pressure on gold prices.


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