Gold rallies as investors turn to safe assets to hedge inflation risk amid market volatility

Gold rallies as investors turn to safe assets to hedge inflation risk amid market volatility

Representative Image



Gold prices steadied on Wednesday, March 16, as a weaker dollar countered pressure from US treasury yields ahead of what’s expected to be the first interest rate hike by the US Federal Reserve in the post-COVID-19 era.

Spot gold was steady at $1,916.71 per ounce in international markets after touching its lowest level since March 1 at $1,906 on Tuesday, Reuters reported. US gold futures fell 0.4% to $1,922.00.

While considered an inflationary hedge, gold is highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion.

Yet, investors consider gold a safe haven from investment in stocks and inflation risk in times of market volatility such as the current bout caused by a tightening monetary policy environment and Russia’s February 24 invasion of neighbouring Ukraine. Experts believe gold has more of an upside in the days and weeks ahead.

Late on Wednesday night India Standard Time, the Fed is expected to announce a 25 basis point hike in the Federal Funds Rate for the first time in three years after keeping the rate low during the two years of the pandemic. One basis point is one-hundredth of a percentage point.

Digesting Fed signals

“Bullion bears are