Gold is starting a new week hovering around $1,640 an ounce as the price goes through a consolidation phase while waiting for fresh drivers.
This week is likely to see both the Federal Reserve and the Bank of England raise their benchmark interest rates by 75 basis points, increasing the pressure on the non-yield-bearing asset of gold.
However, with these increases largely priced in, it will take an unexpectedly smaller or larger move to impact markets when the central banks announce their decisions on Wednesday and Thursday respectively. The greater focus will instead be on the press conferences following the announcements as investors try and work out the future trajectory of the interest rate curve, particularly of the Fed.
Recent disappointing earnings have triggered an increase in expectation that the Fed will have to unwind its aggressive stance as soon as December but with inflation still stubbornly high and the US jobs market holding up relatively well so far, the US central bank may have sufficient breathing space to continue its hawkish stance for a while longer yet.
As such, markets are likely to be in a wait-and-see mode until Wednesday’s Fed decision. In an environment where interest rates are set for a significant increase later this week and again in December, it is hard for gold to make significant gains. However, with the price of gold trading near its lowest levels in two years, any price dips attract an uptick in physical demand, particularly from Asian buyers, which is providing firm support for the price.
So while it is hard to see gold climbing up to $1,700 an ounce anytime soon, it is equally unlikely for its price to fall below $1,600 an ounce.
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