All eyes will be on the Federal Reserve today as the US central bank announces its latest interest rate decision.
Gold investors are looking favourably to this afternoon’s announcement with the precious metal back above $2,000 an ounce on the expectation that today’s expected hike of 25 basis points will be the last of the Fed’s current cycle.
The fact that gold is trading in such elevated territory even after JP Morgan stepped in to buy ailing US bank First Republic and with another interest rate hike all but certainly later today shows that investors are still very much in risk-off mode.
After two months of gains in March and April, May has started on a positive note for gold too as investors look ahead to a macroeconomic environment in which interest rates stop rising with even the prospect of rate cuts coming before the end of the year.
Rising interest rates, particularly those of the Fed, have been the single biggest headwind for gold in the last year or so, therefore the prospect of that bearish factor being removed has enabled the price to climb back above $2,000, a threshold that the precious metal has surpassed only a handful of times in its long trading history.
How long gold can continue to trade at such historically high levels will largely be determined by how successful JP Morgan’s purchase of First Republic proves in restoring market confidence to the banking sector and with it enable investors to return their attention to the positive story on equities shown by the latest earnings.
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