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Gold prices rose sharply in international markets on Wednesday as oil prices declined and investors awaited the U.S. Federal Reserve’s interest-rate decision. Markets have largely priced in the possibility of at least a 25-basis-point rate hike.
At 9:10 a.m. Bangladesh time on Wednesday (September 16), spot gold rose 0.8% to $4,328.39 per ounce. The precious metal had fallen to its lowest level in more than a month on Monday. However, U.S. gold futures for December delivery fell 0.9% to $4,369.50 per ounce.
Market analyst Frank Wallbaum said a hawkish Fed stance could push gold prices lower, while a dovish message could reduce expectations of higher interest rates and help gold recover. Traders are also closely monitoring oil prices and developments in the Middle East.
Gold is generally considered a hedge against inflation. However, higher interest rates increase the opportunity cost of holding gold, which does not pay interest or dividends.
Meanwhile, oil prices fell after U.S. crude inventories unexpectedly increased. Investors are also assessing supply risks following the temporary suspension of oil loading at Saudi Arabia’s Yanbu port.
According to CME FedWatch data, traders were pricing in a 92.4% probability of at least a 25-basis-point rate hike later Wednesday. Following the rate decision, Fed Chair Kevin Warsh is scheduled to speak at a press conference.
Geopolitical developments in the Middle East are also influencing the gold market. A spokesperson for the Saudi-led military coalition in Yemen said Saudi air defenses destroyed a Houthi drone south of the holy city of Mecca before it entered the city’s restricted airspace. The incident came amid continuing concerns over the wider spread of conflict in the region.
Germany’s Commerzbank said it was somewhat surprising that gold prices had not come under greater pressure so far. The bank said relatively high yields on long-term government bonds and rising political risks in the United States were helping keep gold prices relatively stable. Source: Reuters.
