How will gold prices fluctuate with the forecast that the FED will not cut interest rates in 2024?

The US Federal Reserve (FED) ended its meeting on March 20 by announcing that it would keep interest rates unchanged for the fifth consecutive time and forecast a 3/4 percentage point reduction by the end of 2024.

The world gold price then witnessed a record increase. Recorded at 6:17 p.m. on March 20 (US time), the gold price on the floor was at an unprecedented high of 2,222.39 USD/ounce, then set at 2,200 USD at the end of the day.

The Fed also kept its forecast of three rate cuts after the press conference, although it did not set a date. According to a survey from CNBC, 68% of investors predict the Fed will cut interest rates for the first time in June. In a survey by Reuters, that number is up to 72%.

FED Chairman Jerome Powell speaks at a press conference on March 20, 2024.
Photo source: Al Drago, Bloomberg

However, in an interview with CNBC, Mr. Shaan Raithatha, senior economist at leading asset management company Vanguard (USA), refuted this prediction.

In fact, the Fed has previously reduced its forecast for the number of rate cuts this year from seven to three. According to Shaan Raithatha, the reason for keeping interest rates unchanged could be due to strong economic growth, especially growth due to supply and deflation, but it could also be due to the rising stock market. “Currently, we assess that the US stock market is relatively overvalued and shows no signs of cooling down,” said Shaan Raithatha.

Sharing the same view, previously responding to CNBC, Mr. Mark Okada, co-founder and CEO of Sycamore Tree Capital Partners (USA) predicted that there is a high possibility that the FED will keep raising interest rates in 2024. In early March, posted on Bloomberg, Mr. Torsten Slok - Chief Economist at Apollo Global Management (USA), also signaled to investors about a 2024 without interest rate cuts.

Do high interest rates affect gold prices?

According to JB Maverick, a market analyst with more than 17 years of experience in the US, historical data shows that there is no significant correlation between rising interest rates and falling gold prices. In fact, between 1971 and 1981 in the US, the FED interest rate increased more than four times, reaching 16% in 1981. During the same period, the price of gold also skyrocketed, from under $200/ounce to nearly $2,000/ounce.

“Many people mistakenly believe that higher interest rates make fixed-income investments like bonds more attractive, which will divert money away from gold and into other investments that offer higher returns,” JB Maverick added. “But in reality, there are many other factors that influence the price of gold.”

Like many other commodities, the price of gold depends on the law of supply and demand in the market. Since gold production is a long-term process, investors can foresee the supply side of the gold market, but the demand side can fluctuate strongly. For example, jewelry demand, inflation concerns or the purchasing power of State Banks can also affect the gold market. In particular, economic or geopolitical instability can cause investors to rush to buy gold, which is considered a safe investment channel.

However, Hareesh V. Nair, Head of Commodities at Geojit Financial Services (India), told The Economics Times that there is still a significant correlation between falling interest rates and rising gold prices. In fact, when interest rates are lower, the returns on US dollar assets such as bonds and savings accounts will decrease. This can lead to a decline in the value of the dollar compared to other currencies. Since gold is priced in US dollars globally, a weaker dollar will make gold cheaper for international investors, which can push gold prices up.

Commenting on the investment prospects of gold, Mr. Hareesh V. Nair said: “Gold is one of the best assets for long-term investment, providing safety and good returns to investors. In fact, gold prices in India have doubled in the last 5 years and increased by more than 980% since 2003. Therefore, investors can take advantage of the correction in gold prices to consider adding this metal to their portfolio for longer-term benefits.”

World gold price chart, recorded at 14:00 on March 22, 2024

According to a survey by the Industry and Trade Newspaper, early this morning, March 22, 2024, the world gold price is slightly decreasing. Recorded at 5:00 a.m. (Vietnam time), spot gold was at 2,181.135 USD/ounce. At 2:00 p.m. the same day, the gold price was at 2,172.4 USD/ounce. The world gold price today decreased by 8.1 USD/ounce compared to yesterday (March 21).

In the domestic market, early this morning, March 22, 2024, the price of SJC gold suddenly dropped, slipping below 81 million VND/tael. Early in the morning, the highest buying price of SJC gold was 78.40 million VND/tael and the highest selling price reached 80.60 million VND/tael. By 2:00 p.m. the same day, the gold price at Saigon Jewelry Company Limited - SJC continued to decrease to 77.8 million VND/tael for buying and 79.8 million VND/tael for selling.

Gold price at Saigon Jewelry Company Limited - SJC, recorded at 14:00 on March 22, 2024

According to economic experts, SJC gold bars and gold rings will continue to fluctuate in the coming days. Previously, the State Bank said that this agency will evaluate and amend Decree 24 on gold market management in the first quarter and take measures to stabilize this market.

Some analysts recommend that new investors entering the gold market and intending to buy gold for accumulation at this time need to closely monitor market developments to make safe buying decisions and avoid losses.

Source: https://congthuong.vn/gia-vang-se-bien-dong-the-nao-truoc-du-bao-fed-khong-cat-giam-lai-suat-trong-nam-2024-310255.html