Gold Prices Decline Amid High Interest Rate

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Gold Prices Decline Amid High Interest Rate

Gold Prices Reach $1924.06 With A 0.1% Decline

During Monday's session, the Gold prices turned lower amid a warning from the Fed about higher interest rates. The Fed made it clear that the current level of interest rates in the country is here to stay for longer.

As a result of this message from the Fed, the yields and the US Dollar surged higher. This also pushed the Gold (XAU/USD) to turn lower as it is a non-yielding asset.

High-Interest Rates Environment Bad For Gold

In the last few weeks, the yellow metal has been showing rangebound price action as the chances of rate cuts in the US are no longer viable. In fact, 1 or 2 more rate hikes this year are still a possibility, which means more weakness for Gold & other assets.

In simple words, a higher interest rate increases the opportunity cost associated with investing in Gold & other non-yielding assets. In the last year, the Gold also faced the problem and thus had trouble with recovery.

After the news, the Spot Gold (XAU/USD) was trading near $1924.06 with a 0.1% decline. Similarly, the Gold futures (December contract) also declined 0.1% and were seen near $1943.30.

The prevalence of high-interest rates means investors will be sticking to the USD rather than gold or other similar assets.

If we look at the fundamental overview, all the major economies worldwide are facing inflation's resurgence amid rise in the oil prices. So, based on this backdrop, it makes sense for the economic growth to stymie in 2023.

Despite all of this, not all is lost for the yellow metal, as it has shown some buying momentum in the previous sessions. Part of that optimism comes from the rumors that the US government may shut down once again.

The US Congress will have to take action in the next few days if it wants to avoid the government shutdown.

But if we look at history, a scenario like this will not offer much support to the yellow metal. During the government shutdown of 2018 and 2019, the Gold only managed to add $20 to its price.

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