Gold prices at one-year high

Written by Staff Writer Gold prices are hovering at a one-year high this week on concerns over inflation after central banks began raising interest rates and many traders bet they will continue to do…

Gold prices at one-year high

Written by Staff Writer

Gold prices are hovering at a one-year high this week on concerns over inflation after central banks began raising interest rates and many traders bet they will continue to do so in 2019.

Growing investor confidence in the United States economy, solid global growth and a record number of new jobs also support the view that inflation will continue to outpace the Federal Reserve’s 1% to 2% target.

As a result, the Federal Reserve raised interest rates for the third time this year last month and also signaled further increases to come, while the Bank of Japan raised its key rate to -0.1% and said more increases could be needed.

“What’s pushing gold is the non-stop signal from the US central bank to keep rates higher and perhaps even to go to the next level given that they are ahead of their own expectations as well as what the Bank of Japan is saying,” said Jeffrey Halley, senior market analyst at OANDA.

Echoing his comments, American Eagles gold bullion coins sold out quickly after the US central bank raised rates for the third time this year, leading to tight supplies and speculative interest, according to the London Bullion Market Association (LBMA).

“The Fed was not happy and raised interest rates, which has fueled the market to the upside and brought a lot of short covering,” said Nicolas Frappell, analyst at the brokerage ABC Bullion.

U.S. stocks have also hit record highs since the rate increases were announced and continue to climb this week. The dollar is also strengthening against other major currencies, helping gold and the greenback.

What is driving a lot of the inflation talk from central banks is the so-called trade war with China and mounting political tensions between the United States and other countries.

As talks between Washington and Beijing toward a trade pact remain deadlocked, traders are getting nervous about how protectionist trade measures will affect economic growth and inflation, potentially fueling higher interest rates.

“If trade tensions escalate, that will have a huge impact on growth and businesses will slow down,” said HSBC commodities analyst Oliver Nugent.

“That would lead to strong inflation,” he added.

On Thursday, the US dollar index, which measures the greenback against a basket of other major currencies, rose 0.7% to a nine-month high of 96.89. In the past, higher interest rates in the United States have tend to weaken the dollar, making it a relatively attractive investment.

However, some analysts believe that increasing interest rates in the United States could boost business and consumer confidence, which has so far been weak amid the recent trade disputes and Britain’s impending exit from the European Union.

They also point to the notion that US President Donald Trump may choose to prioritise having stronger economic growth over pushing interest rates higher.

But with several Trump-led trade conflicts in play, US lawmakers in Congress are feeling more political pressure to strike a deal with Beijing that will ultimately end the trade tensions.

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