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Updated: 16:00 13/08/22

Dollar boost hits gold and silver as Fed hints at Feb rate rise

By Liam Sheasby, News Editor

28 Jan 2022

The US dollar's latest rally has increased its value against other major currencies including the pound, euro, yen, and Swiss franc – pushing bullion prices down in the process.

The dollar has been boosted by the best economic growth in the States since 1984; partly expected given the slow but steady resurrection of major economies, but still better news than expected.

The US Federal Reserve has also given the dollar a boost by hinting at a February rate rise, with experts suggesting this improved economic data could result in a 0.5 point rate rise rather than the 0.25 initially expected – the current quarter point approach that the Bank of England is taking.

The result has been a drop in the price of gold from Tuesday's high of $1,854.22 per ounce to the current $1,783.68, with a 2.84% drop overall this week. Silver suffered a sharper drop in percentage terms, down 8.5% for the week, with a $2.08 drop to $22.35 per ounce at present.

A poll conducted by the Reuters news agency suggested that the gold price will drop this year and next, with interest rate rises boosting bond yields and discouraging demand for bullion. The improving economic performance of countries including the US, China, France, Spain and Sweden all points towards recovery, but countries such as the UK and Germany are on the cusp on recession. Central bank demand for bullion as a national reserve asset is also steadily returning, and previously offset and surpassed reduced consumer demand in 2018 and 2019.

It's also worth pointing out that it was only on Tuesday that gold and silver hit a 10-week high following geopolitical concerns over Russia and Ukraine. Given the nature of conflict it would be naïve to think that this had blown over now just three days later, and even if we ignore it, the promise of interest rate rises doesn't undo the high inflation that's here now.

With gold and silver prices down, perhaps now's a window of opportunity to stock up on an historically trusted safe haven and hedge against the inflation that experts have said for months and months was just transitory...

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