Commercial banks raised their rates to 8.25% which is the real cost of borrowing capital by corporations.Īnother factor to consider is many analysts and economists including myself understand that to effectively reduce inflation from its current level of 8.5% to an acceptable target of approximately 2%, interest rates at 2 ½% will have a minimal and tepid effect. The net result was to take Fed funds rates from 1% to 5 ¼% to curb inflation and cool down an economy that was excessively overheated. Between 20 the Federal Reserve raised interest rates 17 times. If you think that it couldn’t get much worse simply look back in history to realize that is an incorrect assumption. The net result is that Fed funds rates were near zero in March of this year and are now at 225 basis points to 250 basis points.Īlthough four consecutive rate hikes might seem like the Federal Reserve is raising rates too quickly to combat headline inflation at 8.5%. Beginning in March they raise rates by 25 basis points, 50 basis points in May, 75 basis points in June, and an additional 75 basis points in July. Over the last four FOMC meetings, the Fed has implemented consecutive rate hikes. Market sentiment has been shaped largely by recent and future actions by the Federal Reserve as they ratchet interest rates higher. Market participants have been active sellers of gold as rising yields and dollar strength has made the non-interest-bearing precious yellow metal less attractive. This means that the gains in the dollar contributed 0.81% to gold’s price decline. The dollar gained 2.09 points this week or 1.77% and December gold futures have lost 2.58%. Gains this week in the dollar index have added 1.77% in value-based against a basket of six foreign currencies. The dollar opened at 105.52 on Monday and is currently fixed at 107.43. The last time the dollar was at its current value was July 18. This week’s decline in gold prices occurred as a combination of selling pressure and dollar strength. This amounts to a percentage decline of 2.58%. Considering December gold futures opened at $1819 this week and are currently fixed at $1772.20 per oz. While there is still one trading day left in the week gold has lost considerable value since trading began on Monday.
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