Inflation Fears Reemerge As Interest Rate Hike Expectations Keep Gold Under Pressure

Fears over inflation are dominating market sentiment after a dramatic counter reaction to the Federal Reserve’s decision to increase its benchmark rate by 50 basis points.

Initially, investors looked to have viewed the Fed’s action favourably with equities rising but this was followed yesterday by a sharp reversal amid concerns that this wouldn’t be enough to tackle rising prices.

The Fed’s increase was followed by the Bank of England increasing its rate for the fourth consecutive month with the European Central Bank now pencilling in its first hike in July. While Fed Chair Jerome Powell mentioned in his comments that followed the rate decision that the bank is not “actively considering” increases of 75 basis points, further hikes of 50 basis points are highly likely in the coming months.

Live Gold Price – $/oz

Gold is struggling to gain traction in this environment of rising interest rates and now looks set for a sustained period below $1,900 an ounce. While the bullish support of the ongoing war in Ukraine will limit how far gold declines, this is currently outweighed by the bearish driver of central banks tightening their monetary policy making non-yield bearing assets such as gold less attractive.

It will be interesting to note the market reaction to the US jobs data due out later today with a lot of faith invested in these figures as a sign that the world’s largest economy is continuing to recover from the pandemic. In this jittery market environment, any indication that underperforms expectations is likely to spark further volatility. 

Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News. 

As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwashing while investing sustainably.

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