Gold is trading around $1,775 an ounce as the markets await the minutes of the Federal Open Market Committee’s last meeting, which should give greater clarity on the US central bank’s view on the current economic situation and the trajectory of future interest rate increases.
Having made considerable gains since dropping below $1,700 an ounce in late July, gold is finding considerable resistance to climb back above the important psychological threshold of $1,800 an ounce. The main driver for the recent price gains has been the prospect of future rate hikes by the Fed being less aggressive and shorter-lasting than previously anticipated. However, this is tempered by the reality that more hikes will nonetheless be needed, which diminishes the appeal of a non-yield-bearing asset such as gold.
Today’s high inflation print in the UK is a stark reminder that while there are signs that the pace at which consumer prices are rising in the US may have peaked, in other parts of the world, inflation is still running away. Gold has so far proven to be driven more by the actions of central banks rather than finding support from its perceived role as a hedge against inflation with this enduring inflation proving a negative for the gold price.
In this environment, it is hard to see where the catalyst may come to push gold back above $1,800 an ounce as long as the US dollar remains as strong as it has been in recent months and while the Fed remains on course for further rate hikes over the coming months.
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