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Gold hovers at highest level in 12 weeks
Gold prices rose to the highest level in twelve weeks on Tuesday as investors look ahead to the Federal Reserve interest rate announcements on Wednesday.
Due to oil prices remaining weak, this helps push back expectations of a rise in US interest rates. A slower increase in interest rates by the Fed could benefit gold, as it provides no yield for investors. Trading in interest-rate futures suggest that the market expects the Fed to raise rates only once this year.
Gold is up 5 per cent this month amid slumping stock markets and a decline in the oil price to below $30 a barrel. Gold rose 1 per cent to $1,118.4 a troy ounce on Tuesday.
If interest rates do not rise as fast as previously anticipated, gold prices may adjust higher. In 2015, gold prices declined largely due to expectations of more robust Fed tightening.
Gold prices are also set for a gradual recovery this year as demand increases in Asia and mine production contracts. Some analysts forecast gold demand rising by 5 per cent this year.
Markets will turn their focus to the conclusion of a two-day FOMC meeting later on Wednesday with the announcement of the Fed’s monetary policy.
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