Gold Price Today, July 29: Gold prices traded largely unchanged on Wednesday (July 29) as investors awaited the U.S. Federal Reserve’s interest rate decision later in the day, with markets widely expecting policymakers to keep rates unchanged.
As of 5:55 am, spot gold was down 0.1 per cent or USD 4.2 at USD 4,024.05 per ounce, while spot silver gained 0.2 per cent to USD 57.23 per ounce.
Gold, silver rates on MCX
On the domestic front, gold and silver futures were not trading at the time of writing this report. However, gold futures on the Multi Commodity Exchange (MCX) settled 0.1 per cent lower at Rs 1,41,530 per 10g, while silver futures settled at Rs 2,15,900 per kg.
Gold reacts to Fed rate expectations
“Gold is reacting in the short term to expectations of a rate hike by the Fed. If the Fed hikes rates, the opportunity cost of holding gold, which has no yield, will rise,” said Chris Mancini, co-portfolio manager of GLDAX.
He added that movements in oil prices are also influencing the outlook for gold.
“As oil prices rise (or fall), the probability of higher inflation and higher rates also rises (or falls). If the Strait of Hormuz opens shortly and the price of oil declines, I expect gold to go back up,” Mancini said.
Markets await FOMC decision
Investors are closely watching the Federal Open Market Committee (FOMC) interest rate decision, along with the press conference by Fed Chair Warsh. According to the CME FedWatch Tool, markets are pricing in about a 31 per cent chance of a rate hike at the current meeting.
However, expectations for a rate increase are stronger for September, with more than a 75 per cent probability of a hike. Investors are mostly pricing in a 55 per cent chance of a 25-basis-point increase.
Higher interest rates generally weigh on gold prices because the precious metal does not generate interest income, making interest-bearing assets relatively more attractive.
Oil prices climb on Middle East supply concerns
Oil prices traded nearly 4 per cent higher following renewed supply concerns in the Middle East, reversing part of the recent decline from the USD 100-per-barrel level. Brent crude futures traded around USD 84 per barrel, while WTI crude was slightly above USD 82 per barrel.
Rising oil prices can add to inflationary pressures, increasing the likelihood of higher interest rates.
“If the price of oil declines in short order such that inflation cools, and interest rate hikes are less likely, I think gold goes back to its recent high above USD 5,000 per ounce,” Mancini added.
(Disclaimer: The above article is meant for informational purposes only and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
