The price of gold fell to its lowest level in five-week because of fears the Federal Reserve increase interest rates even quicker.
This will cause inflationary pressures and reduce the value of gold as a hedge.
From Bloomberg:
“There’s growing evidence that inflation could develop,” said Paul McLeod, vice president of precious metals at Commerzbank Securities in New York. “The Fed’s commentary that they’re going to take action to contain” inflation weakened the argument to buy gold as a hedge, McLeod said.
“Greenspan said he feared inflation, and you’d think gold would be going up,” said Michael Wagner, owner of FIC Commodities, a precious-metals brokerage in New York. “Put me on the list of people who are surprised.”
Some investors buy gold in times of inflation, which erodes the value of fixed-income assets, such as bonds. Gold futures surged to $873 an ounce in 1980, when U.S. consumer prices rose 12.5 percent from the previous year.
More from Reuters:
“U.S. benchmark Treasury yields shot to nine-month peaks on Wednesday after an unexpectedly high reading on core U.S. inflation fueled speculation of faster hikes in interest rates.
The 10-year Treasury note (US10YT-RR) swung 10/32 lower in price, lifting yields to 4.68 percent from 4.64 percent late on Tuesday. Yields on the two-year note (US2YT-RR) jumped to 3.91 percent, their highest level since 2001, from 3.83 percent.
Consumer prices rose 0.4 percent overall in February, a little above forecasts of a 0.3 percent rise. More importantly core prices excluding food and energy rose 0.3 percent, against forecasts of a 0.2 percent gain, while the annual rate ticked up to 2.4 percent.
That was a blow to fixed-income investors still smarting from the inflation concerns contained in the Federal Reserve’s post-meeting policy statement on Tuesday. Rate futures (0#FF:) duly slipped as the market priced in greater risk that the Fed will hike faster and farther than first thought.”
From London: Spot gold was last at $427.00/427.70 per troy ounce, down from the New York late level of $431.00/431.75. It touched $425.80 in Asian dealings overnight, the lowest since February 21. The euro was around one month lows at $1.3043.
Murdok | Breaking eBusiness News
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