Gold is tracking steadily upward as the prospect of the Federal Reserve having to end its aggressive interest rate hikes earlier than previously expected has eased the pressure on the precious metal.
Gold’s gains so far this week have been steady rather than spectacular as while expectations are increasing that November may be the Fed’s last large rate hike, the reality remains that interest rates will continue rising in the short-term.
Given gold’s lack of yield, the environment of rising rates makes other interest-paying assets more attractive and provides a firm ceiling on how high gold can climb.
Tomorrow’s interest rate decision for the European Central Bank allied to the latest inflation data from the eurozone’s largest economies on Friday will provide a clearer picture of how the continent is faring as central banks balance the need to bring inflation under control without tipping their economies into a long recession.
The expectation is that inflation will keep on climbing while growth will be slowing, illustrating the scale of the challenge the ECB faces and helps explain the reluctance for the Fed to continue with its aggressive hikes any longer than is necessary.
So while gold has benefited from this potential easing in the Fed’s hike trajectory, at this point the move has been based on sentiment rather than fact with the November and December interest rate moves, allied to the minutes accompanying those decisions, crucial in determining gold’s medium-term outlook.
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