Gold is starting a new trading week by holding above $1,700 an ounce, illustrating that while the environment where interest rates are constantly rising, there remain sufficient concerns about the macroeconomic and geopolitical global outlook to support the haven asset.
Positive jobs data out of the US on Friday has further demonstrated that the world’s largest economy remains in reasonable health so far, despite persistently high inflation. Whereas in previous months, these bullish figures would have been grounds for traders to anticipate a less aggressive monetary policy course by the Federal Reserve, the comments by senior Fed officials at the recent Jackson Hole gathering well and truly tempered expectations in that regard.
Later this week, the European Central Bank is expected to implement another rate hike, potentially increasing its benchmark rate to 1.25% as the continent’s bankers try to juggle the balancing act to try and curb inflation while not tipping the economy into a recession. Their position has become further complicated by Russia effectively cutting gas supplies to the region with the restart of the key Nordstream pipeline now delayed indefinitely.
This balancing act sums up gold’s current position too. Rising interest rates across the world make it difficult for the non-yield bearing asset of gold to make many gains while the growing fear of recession as well as the continued geopolitical fallout from Russia’s invasion of Ukraine provide sufficient support to gold as a haven asset to keep it above $1,700 an ounce.
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