Gold is holding around $1,850 an ounce at the start of a week in which the market will get much more clarity on the likely trajectory of the Federal Reserve’s interest rate moves as well as how well employment is holding up against the current cost pressures.
Fed Chair Jerome Powell will give his semiannual testimony to Congress and the Senate on Tuesday and Wednesday in which he will defend the decisions of the US central bank so far as well as give his outlook on where he sees the world’s largest economy heading. Given how tied up gold has been with the moves of the Fed, these two speeches by Mr Powell will have a big factor in driving the price of gold.
Recent comments by Fed officials, with Mary Daly the latest, have reiterated the need to continue hiking rates until they reach at least 5% with the battle against persistently high inflation far from over. In this environment of rising interest rates, gold becomes less attractive to investors due to its lack of yield so holders of the precious metal will be hoping that Powell doesn’t strike a more hawkish tone than his fellow committee members.
One element that has kept gold supported and prevented it from falling further than its current levels has been the strength of central bank buying, notably from Turkey and China. The latest data on gold holdings by central banks show that their appetite for the precious metal hasn’t slowed as these countries seek to diversify away from the hegemony of the US dollar. As such while gold may struggle to climb back to $1,900 an ounce, the strength of support from central banks should keep it above $1,800.
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