Gold Prices Rise on Back of Interest Rate Fall in the US

The spot gold price rose 0.2 percent on Tuesday for the fifth time in a row to US$1,775.29/oz. In addition, US gold futures also gained 0.2 percent, rising to US$1,791.10/oz. Several economic factors, including falling interest rates in the US, are influencing the spot prices by driving demand, experts say.

The decrease of real interest rates in the US, the worsening global economy, a weakening dollar and the drop in return rates are some of the factors that have boosted the increase in demand for gold, widely considered to be the go-to safe-haven investment asset.

Conventional market knowledge imparts that gold is considered a safe investment during economic and geopolitical uncertainty. The precious metal often does well during times of low or zero interest rates. Amid a persistent pandemic that hampered the economy and a conflict between Ukraine and Russia, key gold producers see that their prices are constantly increasing.

"The dollar rallied amid Federal Reserve rate hike expectations and since expectations have been muted slightly, dollar strength is going to wane a bit in the near term, allowing some support in the gold market," said David Merger, Director of Metals Trading, High Ridge Futures to Business Standard.

According to the US Geological Survey, Mexico produced 3.2Moz in 2021, which makes the country Latin America’s largest gold producer. The top Mexican producers are Fresnillo, Newmont, Torex Gold, Equinox Gold and Agnico Eagle Mines.

Juan Carlos Artigas, Head of Research, World Gold Council, recommended Mexican mining companies and investors to continue focusing on gold, since it offers many opportunities for profits: “Gold is an excellent option to add to an investor's portfolio as it not only provides potential returns but also diversification and liquidity. We believe that in 2022, investment and management will gain strength due to inflation and geopolitical pressures.”

In 1Q22, leading Mexican gold miners saw their production diminish compared to the past year. The 12 main producers showed a combined output of 714,199oz, a 11.8 percent drop compared to the 809,735oz produced by 11 companies in 1Q21. Seven out of the 12 corporations registered lower output at their Mexican operations, 4 posted an increase and 1 reported stable production. Although production dropped, most of the companies still expect to meet their original guidance for 2022, according to BNamericas.

Experts argue that since Mexico ranked as the world's seventh-largest gold producer in 2021, it could therefore benefit greatly from higher gold prices. Nevertheless, a drop in production could hamper its gains. In 2022, Mexico is expected to produce 3.03Moz of gold, showing a decrease of 7.5 percent compared to the 2021 gold production of 3.27Moz, according to estimates made in conjunction with the 19 main gold producers in the country reported by BNamericas.

The general decrease in production is due to lower grades and mine closures at two of Mexico's largest gold producers, Newmont and Fresnillo. However, experts believe that Mexico could compensate for the production drop since 6 of the 19 companies considered in the estimate are expected to increase production. However, this perspective can only be confirmed at the end of 2022.