- The European Central Bank increased interest rates by 50 basis points.
- Markets anticipate a 25 basis point rate increase from the US central bank.
- Initial claims for state unemployment benefits fell by 20,000 to 192,000.
On Thursday, gold prices increased marginally, rising back toward recent highs as worries about the banking crisis persisted in the wake of the European Central Bank raising interest rates.
The European Central Bank increased interest rates by 50 basis points on Thursday despite the chaos in the financial markets. The bank ignored investor requests to hold off on tightening policy until things had stabilized.
Investor attention will now turn to the US Federal Reserve policy meeting that will take place next week. Markets anticipate a 25 basis point rate increase from the US central bank.
Although bullion is seen as a hedge against economic risks, increasing rates raise the opportunity cost of owning the non-yielding asset, hurting demand.
The decline in the dollar, bonds, and stock markets overall helped bullion even more.
According to Daniel Pavilonis, senior market strategist at RJO Futures, the outlook for gold in the short term is bullish. However, bullion will be under pressure if the Fed raises rates by 50 basis points next week.
The labor market is still strong, as evidenced by the fact that fewer Americans than anticipated last week filed new applications for unemployment benefits.
The Labor Department reported that initial jobless claims fell by 20,000 to 192,000 for the week ending March 11. It was the largest decline since July.
The persistently tight labor market and steadily rising inflation make a case for the Fed to keep hiking interest rates next week.
Another set of economic data released on Thursday showed that homebuilding surged in February, possibly paving the way for a springtime housing market recovery.
The Federal Reserve faces a dilemma when officials gather next Tuesday and Wednesday in light of the reports and growing concerns about banking sector contagion. Economists have revised their growth projections for this year downward due to tighter credit and financial circumstances.
On the supply side, Gold Fields and AngloGold Ashanti said on Thursday that they are not seeking a full-scale merger. They, however, decided to combine their adjacent Tarkwa and Iduapriem mines in Ghana to create Africa’s largest gold mine.
Gold miners are looking to consolidate as they strive to replace diminishing reserves and control cost pressures.