Gold Prices Hit 10-Month Low... 'R Fear' Grows, But Second Half Will Rise

US Expected to Take Baby Steps After July Giant Step
Gold Demand Likely to Increase if Long-Term Interest Rates Fall

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] As gold prices have fallen to their lowest level in over 10 months, and with the likelihood of a 'Giant Step' (0.75bp interest rate hike) by the U.S. at the end of this month, there are forecasts that gold prices will rise due to an economic recession in the second half of the year.

According to the financial investment industry on the 12th, the August gold futures price closed at $1,731.70 per ounce on the New York Mercantile Exchange, down $10.60 (0.6%) from the previous session, marking the lowest level since September 29 of last year. Gold prices surged from $1,828.51 at the beginning of this year to $2,000 in March, shortly after Russia's invasion of Ukraine, but have been declining since then. It is analyzed that the U.S. interest rate hikes and the strong dollar, which intensified this year, have pulled gold prices down. Since gold is usually traded in U.S. dollars, the recent high value of the dollar has continued to weaken gold prices.

However, with the possibility of a 0.75 percentage point increase in the benchmark interest rate at the U.S. Federal Open Market Committee (FOMC) meeting at the end of this month, there is a forecast that gold prices could rebound. In June, nonfarm payrolls increased by 372,000 compared to the previous month, and the total number of employed persons has recovered to about 99.6% of the pre-COVID-19 peak. The consumer price inflation rate for June, to be announced on the 13th, is expected to be around 8.8%. Given the continued employment recovery and high inflationary pressures, it is expected that the U.S. Federal Reserve (Fed) will focus on tightening monetary policy.

Severe tightening could burden the real economy by reducing consumption and increase the possibility of an economic recession. For this reason, the financial market expects the Fed's rate hike cycle to end in the first half of next year. Jeon Gyu-yeon, a researcher at Hana Securities, said, "After September, the Fed is likely to switch to baby steps (25bp) in raising interest rates, reflecting economic sluggishness, and the decline in long-term interest rates could lead to a rebound in gold prices."

Due to the decline in currency value, demand for gold as an inflation hedge is also expected to increase. Although commodity prices have recently undergone adjustments, stabilizing inflation, U.S. inflation is expected to remain around 6% until the end of the year. Researcher Jeon said, "Real interest rates could support gold prices as interest rates fall relatively quickly compared to inflation," adding, "A buying strategy during gold price adjustments in the second half of the year is effective, and gold prices are expected to range between $1,700 and $1,950 per ounce."

This content was produced with the assistance of AI translation services.