Gold prices will reach $1,400 an ounce, the highest price since last September, by the end of the year, according to USAGOLD Centennial Precious Metals Inc.
Higher demand from Asia and an anticipation of accelerating inflation are lifting the price, the precious metal dealer’s chief market analyst Peter Grant told Bloomberg. Gold bullion prices will rise even if the Federal Reserve increases the interest rates that banks charge one another for short-term loans, which affects the rates banks charge customers for loans, to forestall future inflation. That’s because higher borrowing costs will likely come with rising consumer prices, he said.
“If you look back over time, there are plenty of instances where rates have risen and gold has risen as well,” Grant said.
When the Fed raised interest rates from June 2004 to June 2006, gold futures rose 57 percent.
Typically, gold investors view rising interest rates as bad news for the metal's price and seek out higher-yielding investments.
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Money Morning's resource specialist Peter Krauth said July 29 that "with low interest rates that are likely to stay low for some time, the opportunity cost of owning gold is next to zero, making it an attractive asset."
Last month, gold prices fell by 3 percent as the prospects of rising borrowing costs dampened the appeal of gold as an asset. On July 30, the central bank reduced its monthly bond-buying program to $25 billion, the sixth consecutive $10 billion cut.
In June, gold shipments to India, the world’s second-largest gold user, spiked by 65 percent after the Fed allowed more banks and traders to buy gold overseas.