- Gold prices stayed below the US$1900 per ounce mark today
- This marks the lowest price in five months
- The mineral remains affected by the lingering uncertainties surrounding the largest economies in the world
Harare- Gold prices started the week on a downward trend remaining below the US$1900 per ounce mark and approaching their lowest levels in the past five months as investors brace themselves for the annual gathering of central bankers in Jackson Hole, Wyoming, scheduled for later this week with a possibility of future interest rate hikes due to concerns about inflation risks.
The US economy plays a significant role in influencing global gold prices. As the world's largest economy, developments in the US have a widespread impact on financial markets and investor sentiment. Factors such as US economic growth, inflation rates, monetary policy decisions by the Federal Reserve, and geopolitical events involving the US can all influence gold prices.
A robust US economy and positive economic indicators may boost investor confidence and lead to higher interest rates, which could potentially reduce the attractiveness of gold as an investment which is the case in this gold issue. Conversely, economic uncertainties, geopolitical tensions, or dovish monetary policy in the US can create a flight to safety among investors, increasing the demand for gold and driving its prices higher.
Globally, gold, alongside the greenback is considered a safe-haven asset and is often sought by investors during times of economic uncertainty or market volatility. It serves as a store of value and a hedge against inflation.
The ongoing uncertainties surrounding the two largest economies, the United States and China, continue to weigh on gold. The unresolved trade tensions and economic challenges between these nations contribute to a sense of market unease. Additionally, the persisting conflict between Russia and Ukraine further adds to the prevailing uncertainties, which in turn affects the stability of gold prices.
In Zimbabwe, however, the price of the Mosia Tunya gold token has increased from 1893.73 to 1988.39 per ounce in the previous trade. With the struggling Zimbabwean economy, gold is being used as a hedge against inflation and as a means of preserving value. The Reserve Bank of Zimbabwe (RBZ) has indicated that the gold-backed tokens will soon be traded as a medium of exchange.
Gold has experienced pressure at global scale in response to the release of minutes from the Federal Reserve's July meeting. The minutes indicated that there is a possibility of future interest rate hikes due to concerns about inflation risks. Higher interest rates can reduce the attractiveness of non-yielding assets like gold, as they increase the opportunity cost of holding the precious metal.
In contrast, China's central bank has taken a different approach by reducing its one-year loan prime rate by 10 basis points to a record low of 3.45%. This move is aimed at stimulating borrowing and economic activity within the country. However, the five-year loan prime rate has been kept unchanged at 4.2%.
China's economy has faced multiple challenges since the onset of the pandemic. One prominent issue is the recent bankruptcy filing of Evergrande, a major real estate company with significant debt burdens. Despite its financial difficulties, Evergrande is still engaged in negotiations with creditors to address its financial obligations. This situation has added to the economic uncertainties and has had an impact on various sectors, including the real estate market.
It's important to note that these developments in both the Federal Reserve's stance on interest rates and China's economic challenges can have implications for gold prices. Market participants will closely monitor future central bank actions, economic data, and any further developments related to Evergrande to gauge the potential impact on gold and global financial markets.
Earlier this month, Country Garden, another major property developer in China, issued a warning of potential losses amounting to US$7.6 billion (£6 billion) for the first half of the year. This announcement highlights the challenges faced by the Chinese real estate sector, adding to concerns about the overall economic landscape.
Official figures indicate that China experienced deflation for the first time in over two years. The official consumer price index showed a 0.3% decrease last month compared to the previous year. Deflation can have negative implications for an economy, as it can lead to reduced consumer spending and investment.
Furthermore, there has been a cessation of the release of youth unemployment figures by Beijing, which has raised concerns among some observers. Youth unemployment figures are often considered important indicators of the country's economic slowdown. In June, the jobless rate for individuals aged 16 to 24 in urban areas of China reached a record high of over 20%. The lack of transparency regarding this data adds to the uncertainties surrounding China's economic conditions.
The faltering of the Chinese economy can have an impact on gold prices. China is one of the world's largest consumers of gold, and its economic slowdown or financial instability can reduce the demand for the precious metal. A weaker Chinese economy may lead to reduced consumer spending and investment, which can dampen the overall demand for gold in the country.
However, uncertainties and risks associated with China's economic conditions can also lead to increased investor caution and a flight to safer assets, including gold, as a hedge against market volatility.
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