It’s all eyes on the Federal Reserve with the bank’s committee having to decide on one of the trickiest interest rate decisions of recent times.
Stop raising rates and the markets will assume there is more to come in the banking crisis as well as risking failing to curb inflation; stick with the original plan of another 25 basis point hike and increase the pressure on already stretched balance sheets.
Gold has come down markedly from its above $2,000 an ounce peak reached at the height of this current banking crisis and is now trading below $1,950. So far, the measures put in place by banks and regulators, both in the US and Europe, have given the market confidence that another bank failure will be avoided and there is sufficient liquidity to avoid the sudden shock from the collapse of three US banks and the close shaves with Republic and Credit Suisse escalating into a 2008 scenario.
As such, gold has fallen back to the level it was at the end of last week with investors now turning their attention to today’s Fed decision. Given how much gold struggled during the Fed’s series of large rate hikes last year, holders of the precious metal will be hoping that the US central bank chooses to keep interest rates where they are.
If this does prove to be the cause of action taken by the Fed then gold could see a surge of demand as it would ease the pressure on the asset from rising rates as well as signal that there could be more failures on the banking sector to come, increasing the appeal of gold with its lack of counterparty risk. As a result, a surge back above $2,000 an ounce looks possible while a 25 basis point increase could push gold back down towards $1,900.
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