Gold has slipped back below $2,000 an ounce as equity markets look set to end a highly volatile week of trading on a positive note.
The driver of this rise in equities is the European Central Bank surprising investors by sticking with its plan to phase out its quantitative easing program and hinted at future interest rate rises, even if the March figure was left unchanged.
The fact that the ECB has maintained this hawkish stance in spite of the escalating war in Ukraine illustrates how severe an issue runaway inflation is becoming for the global economy, something that the sanctions on Russia and the reduction in the flow of key commodities is only going to exacerbate.
While gold still remains at levels it has only touched a few times in the metal’s extensive trading history, its dip in price below $2,000 is a reminder that prior to Russia’s invasion of Ukraine, the spectre of rising interest rates was proving a considerable headwind to the precious metals medium-term outlook.
The flight to haven assets in the wake of Russian troops crossing over the border into Ukraine threw those concerns out of the window as investors rushed to the time-honoured haven asset of choice in gold.
The ECB’s decisions yesterday brought a stark reminder of how serious a problem inflation is becoming and may prove that gold now fails to achieve the all-time high that seemed possible earlier in the week as gold’s lack of yield makes it unattractive at times of rising interest rates.
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