Gold prices approach year-low as interest rate hike looms

Gold prices plunged on Thursday to their lowest levels in nearly a year, as the prospect of an interest rate hike by major central banks to curb spiraling inflation weighed on the precious metal’s allure.

Although gold is considered a hedge against inflation, higher interest rates increase the opportunity cost of holding the yellow metal, which does not yield a return.

Spot gold fell 0.3% to $ 1691.84 per ounce by 0313 GMT, after it fell to its lowest level since early August 2021, recording $ 1689.40 earlier in the session, Reuters reported.

US gold futures fell 0.6 percent to $1,690.40 per ounce.

The European Central Bank is set to raise interest rates for the first time in 11 years on Thursday, with a larger-than-said move increasingly likely as policymakers fear losing control of unbridled consumer price growth.

The Federal Reserve is also widely expected to raise interest rates by 75 basis points at its policy meeting next week.

In Britain, inflation rose in June to a 40-year high, boosting the chances of the Bank of England raising interest rates by half a percentage point next month.