Posted 8th April 2022

Gold Trapped In Sideways Drift Between Bearish and Bullish Pillars of Rate Hikes and War

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Rupert Rowling
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Gold continues to drift sideways around $1,930 an ounce as it is trapped between two equally strong bearish and bullish drivers. 

The continuation of the war in Ukraine with Russian troops being primed for a fresh offensive in the east of the country is keeping gold supported due to its time-honoured safe-haven appeal. However, gold’s potential for fresh gains is being capped by the hawkish monetary policies of central banks in Europe and the US.

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Gold ($/g) chart – from Kinesis Exchange – Gold trapped between bearish and bullish drivers

Minutes from the March meeting of the Federal Open Market Committee released earlier this week showed that a number of officials would have favoured raising interest rates by 50 basis points, double the increase actually agreed.

The minutes also suggested that there will be a further six rate hikes over the course of the year with each one likely to knock a little of the lustre off gold’s appeal to investors with its lack of yield a stumbling block in an environment of rising interest rates.

While the European Central Bank still remains some way off interest rates entering into positive territory, with the first hike not forecast until December, it has signalled that the war in Ukraine hasn’t deterred its intention to end net-bond buying in July as the pressure from rising inflation ensure that the time for accommodative monetary policy is over. 

With no end in sight for the war in Ukraine and central banks set on their medium-term economic policies, gold looks set to continue to drift for a while longer yet, awaiting either a further escalation in the conflict in Ukraine or a breakthrough in peace talks to shake the price into action.

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