Gold’s great run continues with the precious metal now trading at its highest level for eight months. A weakening of the US Dollar alongside expectations that the last of the Federal Reserve’s large interest rate hikes is already behind us have created ideal conditions for gold to continue its impressive recovery that started back in early November.
Later this week brings the release of the latest US inflation data, which will be a key reference point for traders and investors to assess the macroeconomic situation of the world’s largest economy. Persistently high inflation has been the reason for the Fed to adopt its hawkish stance but recent signs that inflation has peaked as well as jobs data pointing to an employment market still holding up well have raised hopes that the US central bank will not need to continue its rate hikes for much longer.
While gold struggled in the face of rate hikes in 2022, with the asset’s lack of yield making other sectors more attractive, the prospect of 2023 bringing far fewer hikes has seen gold come back in favour.
The one lingering concern about gold’s impressive rally is that it has been based on sentiment rather than fact. Gold gained in December even though the Fed implemented a rate hike and is still gaining now even though the Fed is again expected to increase its benchmark rate at its next meeting. It therefore would only take one or two negative data points or a surprise move by the Fed to cause an abrupt volte face for gold.
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