Gold Defies Rate Hike with Strong Recovery to $4,380
The recent hike in interest rates by the Federal Reserve has not deterred gold's recovery. After falling to a near six-week low, gold rebounded to around $4,380 an ounce, indicating that demand can overcome higher rates. The Fed raised its target range by 25 basis points to 3.75% to 4%, which increased the holding cost of bullion.
The Iran war pushed oil prices above $107 a barrel on September 16, raising inflation pressure and supporting higher interest rates. Higher cash yields make gold less attractive as investors can earn returns from bonds and other assets that pay interest.
According to Tim Waterer, Chief Market Analyst at KCM Trade, gold's near-term range is between $4,200 and $4,580. To reach the upper end of this range, lower oil or bond yields are required. If the Fed hikes rates again on October 28, gold may fall towards the lower end of this range.
Gold remains about 22% below its record high of $5,589.38 set in January, offering contrarian buyers a lower entry point. Central banks have been buying gold, with 288.9 metric tons purchased in Q2, while exchange-traded fund holders sold. This indicates that sovereign demand is less sensitive to interest rates.