The reality check delivered by a range of Federal Reserve officials this week has pushed gold towards its lowest level in a month.
Last Friday’s hot jobs data out of the US has given the Fed far more bandwidth to maintain its policy of interest rate hikes with Thomas Barkin, CEO of the Federal Reserve Bank of Richmond, the latest senior official at the US central bank to reiterate the need for the Fed to stay the course to fully tackle high inflation.
Gold had been trading comfortably above $1,900 an ounce with traders and investors already looking ahead to the end of interest rate hikes so the realignment to factor in more increases and for longer than previously thought caused the price to come tumbling down.
Gold with its lack of yield is less attractive to other investors at times of rising rates with other interest-bearing assets such as bonds favoured instead. Yet despite this week’s decline, the gold price is effectively back where it started the year at and is still far higher than where it was trading for the second half of last year.
Record buying of gold by central banks last year will have built up significant support for the precious metal and cushioning the fall. As such, while the outlook for gold has started to look more bearish than bullish, the price is unlikely to fall significantly with so much institutional interest in the asset class.
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