Gold’s great run continues with the price now above $1,900 an ounce after a favourable US inflation report paved the way for the Federal Reserve to be less aggressive with its upcoming interest rate moves.
Yesterday’s figures confirmed that inflation is now on a downward trajectory, albeit still considerably higher than the Fed’s target of 2%. As such, while the US central bank is still likely to increase its benchmark rates when the committee meets at the end of this month, the expectation now is that the hike will only be 25 basis points.
After gold suffered for much of 2022 under the weight of the Fed’s series of hikes, the precious metal is now benefiting from a smoothing out of the bank’s interest rate curve, with gold set for its fourth consecutive weekly gain.
Even with the likelihood of far fewer rate hikes this year, the size of gold’s gains since early November is truly remarkable. From languishing around $1,630 an ounce, the precious metal is now trading almost $300 higher at its highest level since late April.
During this period the Fed has implemented one further rate hike and is almost certain to increase them further when it meets next. Given that gold, with its lack of yield, is typically less favoured compared with interest-paying asset classes, such as bonds, at times of rising interest rates, it underlines the current strength of buying that the price has been able to climb so high.
The lingering concern remains that the gains are overdone and a corrective phase will be needed soon.
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