Global gold prices hit by US Fed’s aggression on interest rates, here’s why that happened

The World Gold Council cited a report on the third quarter to show that the demand for gold was strong.

FPJ Web DeskUpdated: Friday, November 18, 2022, 12:25 PM IST
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Gold is tied to the US Federal Reserve’s interest rate hike, which could make managing investments in the yellow precious metal more or less expensive. After fears of the conflict in Europe worsening pushed investors towards the bullion, gold’s fortunes again turned around when the US Federal Reserve’s official ruled out chances of slowing down rate hikes. Amidst this volatility gold has slid down from its six month high globally, but marginally gained value in Indian markets.

Why gold becomes less attractive in high interest environment

With this uptick, 22 carat gold is priced at Rs 4,876 per gram and the rate for 24 carat gold reached Rs 5,319 a gram. As interest rates go high, other investments which pay interest promise higher returns, but gold doesn’t pay any such returns. This naturally makes gold less attractive for investors, since it also needs to be stored in a secure manner, which adds costs. That is why interest rates and gold prices have an inverse correlation, where gold dips as the interest goes up.

Chennai remains the costliest city to buy gold, with Rs 4,951 per gram for 22 carat, and Rs 5,401 a gram for 24 carat.

Delhi buyers will have to pay Rs 4,891 a gram for 22 carat gold and Rs 5,336 per gram for 24 carat.

Mumbai and Kolkata are selling 22 carat gold for the same price of Rs 4,876 per gram while 24 carat gold is priced at Rs 5,190 and Rs 5,290 in Mumbai and Kolkata respectively.

Silver on the other hand has dropped from Rs 62 per gram on Thursday to Rs 61.2 per gram on Friday respectively.

Despite the fluctuating prices, the World Gold Council’s report showed that there was strong demand for gold in the July-September quarter, with central banks buying a record 400 metric tons in three months.

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