Gold has dropped back a fraction on Wednesday after its remarkable gains on Tuesday that saw it climb back above $1,700 an ounce, a move that looked highly unlikely just a matter of days ago.
The significant gains were driven by economic data out of the US, namely September’s ISM Manufacturing PMI and August job opening figures, that came in below forecast, suggesting the world’s largest economy isn’t proving as resilient from the series of interest rate hikes implemented by the Federal Reserve after all.
In this climate, it raises the prospect of the Fed having to be less aggressive with its upcoming interest rate moves. Given that it has been the hawkish stance of the US central bank that has been the main agent in gold’s multi-month decline, the potential for a more accommodative Fed going forward gave the precious metal a surprisingly strong boost.
The fact that gold has been able to make such significant short-term gains demonstrates that there remains significant underlying support for the ultimate haven asset given the ongoing war in Ukraine as well as increasing fears of a global recession. It also shows the impact the recent strength of the US dollar, which has a typically inverse correlation with gold, has had on weighing down the price of gold.
While gold investors will no doubt toast the recent upward move, it is driven more on rhetoric that the Fed may be less hawkish. Therefore for the move to be sustained it will take a smaller hike by the Fed to ensure the gains are held onto. In this backdrop, today’s speech by Raphael Bostic, President of the Federal Reserve Bank of Atlanta, will be even more closely scrutinised for any hints on a possible change in direction by the US central bank.
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