After having for months called the growth of prices “transitory”, the Federal Reserve is now willing to fight inflation with “whatever it takes” with the US central bank forced to increase the speed of its interest rate hikes.
The most recent U.S. inflation figures, which came in at an annualised rate of 8.6%, pushed the Fed to increase rates by 0.75% - the highest increase since 1994.
Moreover, investors are now expecting another increase of 0.50-0.75% at the end of July, followed by a series of 0.5% hikes until the end of 2022, which could bring rates into the range of 3.50 - 4% by December.
Live Gold Price - $/oz
While the decline of the stock market seen in the last ten days is inextricably linked to the Fed’s decision, the bank is not the only one becoming more hawkish. Indeed, the ECB is ready to hike rates in July for the first time in a decade, while the Swiss National Bank surprised the markets by moving rates from -0.75 to -0.25%. The Bank of England, as expected, raised rates by 25 basis points, from 1% to 1.25%.
This scenario, marked by a strong U.S. dollar and by rising rates, is of course not ideal for gold but despite this, bullion has managed to hold above $1,800. In fact, after a temporary slowdown, bullion has recovered to $1,850 in the last few hours, confirming its strength despite this challenging macro environment.
Carlo Alberto De Casa is an external Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. Carlo provides regular commentary for UK notable outlets including the BBC, Telegraph, The Independent, Bloomberg, FX Empire and Reuters.
With a credential background in Economic Finance and International Exchange (MA), his critical analysis on gold and silver’s markets performance is frequently quoted by leading publications, week-on-week.
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