Strong naira, hawkish US Fed push gold prices in Nigeria to N180,000/g

Gold prices in Nigeria experienced a decline, reaching around N180,000 per gram, inclusive of retail markups, at the official exchange rate due to a stronger naira and a hawkish stance from the US Federal Reserve. Most vendors at major Nigerian gold markets, such as Lagos, Kano, and Abuja, usually add a local premium of 5% to 10% to the spot rate.

The gold price per gram ranged from N174,900 to N176,500, while the per ounce price fluctuated between N5,449,000 and N5,516,000, based on a global spot price of approximately $4,120 to $4,165. The USD/NGN spot exchange rate stood at roughly N1,320/$ to N1,331/$ in the Nigerian foreign exchange market.

A hawkish US Federal Reserve, characterized by sustained higher interest rates or monetary tightening, led to a stronger US dollar and negatively impacted dollar-denominated global gold prices. Currency fluctuations, particularly the naira's movements against the US dollar, had a significant impact on local gold prices in Nigeria.

Local investors and savers often turned to physical gold, including bars, coins, and jewelry, as a protective measure against the depreciation of the naira's purchasing power. Despite last week's US macroeconomic data suggesting slower inflation and a pause in the tightening of the US job market, which put pressure on the Federal Reserve's rate-hiking plans, the probability of a December rate hike remained at around 85%, according to the CME Group's FedWatch Tool.

The minutes of the Federal Open Market Committee (FOMC) meeting on Wednesday would be closely monitored by traders for any indications of further rate hikes and the policy parameters affecting the USD and non-yielding gold.

BNY Markets strategists pointed out that the reassessment following an October Fed move did not signify a substantial shift in the anticipated near-term policy path. They expected the second rate hike of the cycle towards the end of the year. The persistent geopolitical concerns and rising US bond yields, driven by heightened Middle East tensions and increased aggression from Iran-backed forces, supported the safe-haven currency.

Additionally, Iran's increased strikes in the Strait of Hormuz further bolstered crude oil prices and the bounce from one-month lows observed overnight. These factors contributed to a positive outlook for the USD and lent further support to the bearish stance on gold. Meanwhile, China's central bank continued its monthly gold-buying spree for the 23rd consecutive month, with minimal impact on the gold price within a negative fundamental environment.