Gold is treading water around $1,770 an ounce as markets take the chance of a quiet day from a macroeconomic data standpoint to assess the true health of the global economy.
Traders and investors remain very jittery with the odd positive data point mixed in with increasing concerns of a sustained global recession, particularly in the light of China’s sustained lockdown bound to hit activity in the world’s second largest economy. As a result, early confidence on the dovish trajectory that the Federal Reserve will set out at next week’s interest rate meeting is being replaced by gloomy outlooks from the likes of Goldman Sachs, JP Morgan and Morgan Stanley.
Investors are therefore trying to assess where gold sits in the current environment. A global recession with a subsequent flight to haven assets should benefit gold, as should a Fed forced to be less aggressive with its rate hikes to avoid tipping the US economy into recession. Yet before the media blackout that precedes a Fed meeting, bank officials were lining up to state that interest rates would need to reach at least 5% to calm persistently high inflation. So next week’s meeting no longer looks like the formality it was starting to appear.
With gold recently benefiting from the fallout in crypto markets, further signs of the precious metal’s return to favour has been shown by recent central bank buying, including China buying gold for the first time in three years. After a 2022 that has largely been characterised by interest rate hikes putting gold under pressure, gold is ending the year on a much firmer footing and looks to be well positioned for a rally in the new year.
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