Finance

A Look at Gold as the Fed's Rate Hike Looms

A Look at Gold as the Fed's Rate Hike Looms”

Gold is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.

MSCI's all-country world stock index gained 0.7 per cent, and hit an all-time high. USA crude prices were up 0.76 percent at $49.12 a barrel, as investors weighed the impact of the Organization of the Petroleum Exporting Countries' production cuts against rising US shale oil output and persistently high inventories.

Prospects for higher rates have generally been dollar-positive and gold-negative as a richer buck makes gold less attractive to investors using another currency. The dollar, which went as high as 115.195 yen earlier this week, last stood at 113.420. It hit a session high at 0.7687 and made session lows at 0.7662 levels. Gold had consolidated around the $1,200 / ounce level, but has seen a sudden surge after the telegraphed interest rate hike. The kiwi had risen to a 12-day peak of $0.7050 the previous day.

Silver prices rose slightly on Friday and were on track for their first weekly gain in three, as a weaker USA dollar drove investors to precious metals. That was supported by other data on Friday showing a gauge of future economic activity rose in February to its highest level in more than a decade.

European shares edged higher on Friday, though weaker auto stocks euro zonebanks weighed. France's CAC 40 lost 0.3% at 4,986.61.

US Treasury yields, which slid after the decision, staged a recovery on Thursday and continued to rise on Friday. The Nasdaq was flat, while the Dow and the S&P 500 posted losses.

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Hours after the Fed's rate hike, China's central bank on Thursday raised short-term interest rates for the third time in as many months, a day after the end of the annual session of parliament where leaders warned that tackling debt risks would be a top policy priority this year.

Prices on benchmark 10-year Treasuries rose 24/32 to yield 2.508 percent, from 2.595 percent late on Tuesday.

The dollar index, which tracks the greenback against a basket of six trade-weighted peers, retreated 0.2 per cent to 100.18. US crude settled up 2.4 percent at $48.86 a barrel, after touching a three-month low a day earlier. Both benchmarks gained 0.8 percent for the week.

The dollar was hovering at five-week lows against other major currencies on Friday, as the dovish tone of the Federal Reserve's latest policy statement continued to weigh and as investors eyed the release of USA data due later in the day.

April Comex Gold futures are holding steady on extremely low volume early Friday after holding on to gains produced by the Fed's decision not to increase the pace of monetary tightening after its two-day monetary policy meeting concluded on Wednesday.



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