Gold Prices Rose as Markets Evaluate Fed Risks

On Monday, gold prices jumped after hawkish comments from the Federal Reserve officials about interest rate hikes triggered profit-taking.

Gold futures for June delivery went up by 0.13% to $2,018.35 per troy ounce on April 17’s Asian afternoon session.

It dropped by almost 2.00% on Friday after Fed hawk Governor Christopher Waller called for monetary tightening. This came despite the recent data showing that inflation in the US withdrew steadily from 40-year-high hits the previous year.

Moreover, his comments counterbalanced the forecasts that the Fed will almost hit its terminal rate. Lower-than-expected inflation data hints at a weaker labor market, triggering more significant gains in gold.

Also, the commodity has been supported mainly by demand over the previous month. In addition, the collapse of some US banks played a part.

However, while fears about a larger crisis seemed to ease, anticipations of a recession in the US this 2023 fueled income into gold.

Furthermore, the yellow metal and other non-yielding assets were affected by higher US interest rates in 2022. This year, it recovered as bulls expected the end of further rate hikes. Still, Fed Fund futures prices show that markets plan another hike in May.

Besides, the central bank boosted its 2023 average gold price estimates by 7.90% to $2,050.00 per ounce.

LTV Ratios Dropped as Gold Surged

According to analysts, gold’s loan-to-value (LTV) ratios fell in the past months as its prices boosted. As a result, customers have been wiser in availing of loans by not borrowing higher amounts.

They observed a decline in the LTV overall portfolio amid increases in gold costs and a conventional approach by the bank.

With its price rising, its demand for yellow metal loans increased. It has been consistently increasing since June 2022. Also, the growth rate jumped. Moreover, the loan against the precious metal boosted from 0.80% year-on-year in June 2022 to 20.00% in February.

Additionally, a higher LTV ratio mirrors a borrower’s credit risk. Gold mortgage rates are between 7.20% and 20.00% or more.