Gold prices surge amid the backdrop of a weaker US dollar
- 1st September 2020
- Posted by: Hakeem
- Category: Commodities
Gold prices were firmed in the early hours of Tuesday, nearing a two-week high as a weaker greenback and ultra-low interest rate environment kept the gold bulls roaring upward.
U.S. Federal Reserve Chairman, Jerome Powell, recently presented an unusual accommodative policy change that could result in inflation moving upwards, and interest rates staying arbitrarily lower in the long term.
At about 04.33 am GMT, the gold futures contract gained $15.70, to settle at $1,994.30 an ounce.
Why gold prices are up
The U.S Fed Reserve’s strategy now permits inflation to rise above its 2% target to make up for the time when inflation was below its target, signaling that a long period of very low-interest rates lies ahead.
What you must know about Gold: the yellow metal tends to usually rise in value on expectations of lower U.S interest rates, which reduces the opportunity cost of holding non-yielding bullion. Also, it usually rallies up, when the U.S dollar is showing weakness.
Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, gave vital insights on the macros that made the yellow metal rise in value. He said:
“Gold remained supported overnight by a dip in US yields amid the backdrop of a weaker US dollar.
“The yellow metal now looks like an excellent place to invest in for a few years provided real rates remain lower, which is bound to happen on any reflationary bounce.”