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A week in gold: Fed interest rate hike uncertainty to keep price low until a decision is made

Published: 08:29 30 May 2015 BST

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This week saw gold fall back below the US$1,200 level as it continues to move in the opposite direction to the dollar.

Commerzbank sees that changing by the end of the year however, when the Federal Reserve is expected to raise interest rates.

“Once the Fed’s first rate hike has come in autumn, the gold price will probably rise again” it said.

“The continuing debate over the summer months about the timing of the Fed’s first rate hike should prevent a rise of the gold price in USD [dollars] for the time being.”

The unknown timing of an interest rate hike has been the main driver for gold, with investors looking for clues on when and how far it is likely to lift it.

“Our economists forecast the first rate move for September” Commerzbank continues. 

“Once the uncertainty about this is behind us, the gold price should rise moderately to USD 1,250 per troy ounce by year-end, as the Fed will probably proceed very slowly in raising rates.”

Meanwhile, gold’s little cousin silver has been outperforming the yellow metal. 

The silver price has outperformed the gold price so far this year, rising 5.5% compared to a 0.06% gain in gold. Besides the cheaper price level compared to gold, there are fundamental reasons for this.

According to Thomson Reuters GFMS, the physical demand for silver should increase again this year. GFMS, a research company that specialises in precious metals, expects to see strong demand especially for jewellery, silverware, coins and bars.

Commerzbank said it forecasts silver to climb to US$18 per troy ounce by the end of the year.

Finally, platinum has had a tough 2014 shedding 7.1% since the turn of the year, but things could be looking up for the metal. 

According to estimates from Johnson Matthey, the world’s largest platinum and palladium refiner, platinum supply will be 285,000 ounces lower than demand this year.

Commerzbank thinks this will mean an uptick in its price. “While the platinum and palladium markets are no longer as tight as in 2014, the fourth consecutive annual supply deficit is on the cards nevertheless” it said. 

It expects the price to rebound to US$1,250 before the end of the year.

As the markets closed yesterday, gold was trading at US$1,187 per troy ounce while silver was US$16.67 and platinum was US$1,113.

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