International Gold News
Gold Prices Fall on Interest Rate Hike Expectations
Gold prices have fallen sharply in recent days, pressured by expectations that the U.S. Federal Reserve will soon raise interest rates. The Fed is widely expected to hike rates by 50 basis points at its next meeting in May, and potentially by another 50 basis points in June.
Higher interest rates tend to make gold less attractive to investors because they increase the opportunity cost of holding non-interest-bearing assets. Gold is also seen as a safe-haven asset during periods of economic uncertainty, but rising interest rates suggest that the global economy is improving.
Gold Demand Plunges in China
Gold demand in China, the world’s largest gold consumer, has plummeted in recent months due to the country’s stringent COVID-19 lockdowns. Physical gold purchases in China fell by more than 50% year-over-year in April, according to the World Gold Council.
The lockdowns have disrupted supply chains and limited consumer spending, weighing on gold demand. However, the World Gold Council believes that demand will rebound once the lockdowns are lifted and the economy recovers.
Central Banks Increase Gold Reserves
Despite the recent decline in prices, central banks continue to increase their gold reserves. The World Gold Council reported that central banks added a net of 180 tons of gold to their reserves in the first quarter of 2022, the highest quarterly increase since 2019.
The purchase of gold by central banks is seen as a sign of confidence in the long-term value of the metal. It also suggests that central banks are concerned about rising inflation and geopolitical risks.
Outlook for Gold
The outlook for gold in the short term remains uncertain. Interest rate hikes by the Fed and the economic slowdown in China are likely to continue to weigh on prices. However, the ongoing geopolitical tensions in Europe and the Middle East could provide some support for the metal.
In the long term, the World Gold Council remains bullish on gold. The organization believes that the metal will continue to be seen as a safe haven asset during periods of economic and geopolitical uncertainty. Gold is also expected to benefit from rising inflation and the depreciation of the U.S. dollar.
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