Gold prices rose as the rise in the dollar and US assets slowed. Gold’s price per ounce fell to its lowest level in 3 months, trading below $1,800 the previous day. Today it reached the $1830 level. So is the 1000 lira mark seen under a gram? Here are the details…
The Nasdaq index, dominated by technology stocks in the US, fell 4.7 percent yesterday. The rate of decline exceeded 4 percent in the S&P 500 Index, which includes most of the largest US companies, and 3.5 percent in the Dow Jones Index. US stock markets have not seen such a sharp drop in a single day since 2020.
A similar trend was seen in Asian equity markets. Hong Kong’s Hang Seng Index fell 2.3 percent today, while Japan’s benchmark Nikkei fell 1.8 percent.
Speaking to milliyet.com.tr on the subject, Prof. DR. Sefer Şener explained the possible scenarios: “The price of gold had seen below $1800 after the US Federal Reserve (Fed) rate hike by 50 basis points. In fact, the price of gold fell in the next period from the 1950 to 1960 dollar levels. This caused a drop to $1800.
INCREASED INTEREST FROM THE FED…
The reason for the drop below ounce was the expectation that the Fed would hike rates. Russia, the ongoing war with Ukraine prevented an ounce of gold from falling below $1800, albeit partially. Subsequently, the Fed’s 50 basis point rate hike caused the dollar index to hit 105. This caused the dollar to rapidly appreciate against both developed and developing world currencies. This surge also led to a rapid rise in the dollar/TL rate in the Turkish markets.
In fact, the main reason for the current rise in the dollar exchange rate in Turkey is the global strengthening of the dollar after the US interest rate hike. However, it is not enough to relate this situation to the dollar index alone. At the same time, domestic dynamics, growth figures, budget deficit and current account deficit figures are expected not to increase CBRT interest rates in the coming period, which again pushed the dollar/TL exchange rate to higher levels.
In fact, it can be said that the dollar rate is normal according to the annualized inflation figure of 69.9 announced in Turkey. As the Dollar Index strengthens on the one hand and Turkey’s inflation figures continue to rise on the other, it seems normal for the Dollar/TL to rise.
Despite inflation and the dollar index, a more stable dollar/TL exchange rate, as it has been since December 20, 2021, will speak for the economy in terms of future inflation data. On the other hand, gold has reached the $1800 level on an ounce basis. Due to the dollar/TL exchange rate, the gram gold price did not relax below 900 TL.
Eventually, the fact that it had gone up to $1830 since the 19th century caused gold to go back up to 940 lire per gram. Although gold has not appreciated much in world markets, the upward movement in the dollar rate is the biggest determinant of gold grams.
CAN I SEE 1000 LIRA LEVELS?
The revisit of 1000 TL subgram levels is related to how the dollar index will shape in the next period. In other words, a renewed increase in the dollar/TL rate will allow to see 1000s under grams.
It is very likely that a 50 basis point rate hike is expected in the US. As long as the Fed is expected to raise interest rates further, it does not seem possible for gold in ounces to rise above the 1950 dollar level in the short term. However, Russia and the escalation of tensions surrounding the war in Ukraine could push the price of gold above $1950 per ounce. In this case, the gram of gold exceeds 1000 lire.”
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