The price of gold (TVC: $GOLD) bullion is up 2% and trading above $4,000 U.S. an ounce on July 30 after the U.S. Federal Reserve left interest rates unchanged.
In early trading, gold was changing hands at $4,100 U.S. after America’s central bank elected to leave its key Fed Funds Rate at its current range of 3.50% to 3.75%.
There had been concerns that the Federal Reserve was going to raise interest rates, which would be negative for non-yielding assets such as gold.
Higher interest rates diminish the opportunity cost of owning gold.
At the same time, gold is getting a lift as rising tensions in the Middle East heighten gold’s appeal as a safe haven asset in times of geopolitical instability.
And gold is benefitting from new data that showed the U.S. economy slowed in this year’s second quarter even as inflation continues to rise.
Gross domestic product (GDP) in the U.S. slowed to an annualized rate of 1.5% in the April through June quarter, down from a 2.1% annual advance during the first quarter.
At the same time, a separate report showed that the annual inflation rate in the U.S. is currently at 3.7%, well above the Federal Reserve’s 2% target.
The slowing economic growth and rising inflation raise the prospect of stagflation, a situation that has not been seen in the U.S. since the late 1970s.
All the uncertainty has investors piling back into gold, giving its price a boost.
However, the reprieve in interest rate hikes might be short lived as the market is pricing in two 25-basis point increases in the U.S. this year, one in September and another in December.
The Federal Reserve next decides on interest rates Sept. 16.
