Gold has fallen below $1,860 an ounce to its lowest level in over a month as markets brace themselves for the Federal Reserve keeping interest rates higher for longer.
This readjustment of the likely actions of the US central bank has also seen the US dollar strengthen, adding to the pressure on gold given its typically negative correlation with the greenback.
The significant gains that gold made in January, largely on the back of expectation that the end of the Fed’s cycle of interest rate hikes was fast approaching, have now fallen away as strong jobs data has given the Fed more bandwidth to keep up its policy of increasing rates without tipping the economy into recession.
This week brings two further key inflation data points and while both are expected to show consumer prices rising at a slower rate and producer prices falling, inflation remains way above the Fed’s 2% target meaning further action is still required.
The concern for gold throughout January was that it was trading on sentiment rather than reality and while the indicators throughout last month matched up with this forward-looking view, it would only take one or two data points out of line with the prevailing view for the precious metal to suffer a price shock. This is exactly what has happened with a hotter-than-expected US jobs print forcing a recalibration of how soon the Fed will stop its aggressive stance.
For now, gold investors will be hoping that this week’s US inflation data positively surprises to once again give the US central bank room to hit a pause on more hikes.
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