Growing speculation of further rate cuts by the Federal Reserve tomorrow coupled with supply disruptions in South Africa increases the precious metal’s appeal.
Gold prices touched yet another all-time high on Tuesday as a weaker dollar coupled with expectations of further rate cuts by the Federal Reserve and supply disruptions in South Africa increased the appeal for the precious metal. Spot gold prices rose to $929.84 an ounce, its highest ever, and traded at $927.78 at 1:39 p.m. in Singapore. The yellow metal jumped 31% in 2007, extending its longest rally since at least the end of World War II. Meanwhile, spot prices of platinum in London hit a record high of $1,735 a troy ounce while silver surged to a fresh 27-year high of $16.76 an ounce.
Faced with a slowing economic outlook and turbulent markets, the Fed is likely to slash its benchmark rate by 25 basis points at the end of a two-day meeting tomorrow, traders said. If the US central bank does cut rates further, it will weaken the dollar further and increase the appeal of commodities as alternative investments. The dollar traded near its lowest against the euro in two weeks. Interest-rate futures show an 86% chance that the Fed will lower borrowing costs to 3% on January 30. The Fed cut its benchmark rate by 0.75% to 3.5% on January 22 in a bid to calm the markets and prevent a recession.
A power crisis in South Africa, the world’s biggest producer of platinum and the second-largest miner of gold after China, is also enticing a lot of investors to gold. The African country suffered its worst power shortage in decades. The world’s biggest platinum miner, Anglo Platinum and gold miners AngloGold Ashanti, Gold Fields and Harmony last week stopped mining after losing guarantees of power. South African mining companies said they hoped to resume production later this week, but there was no sign of an end to power shortages, as state utility Eskom Holdings only provided enough power for maintenance and safety procedures. According to reports, some mines in South Africa have restarted production and more are expected to follow later in the week. AngloGold expects supply to increase later this week, allowing a phased return to normal output. (India Infoline)