Posted 22nd April 2022

Gold Gets Short-Term Boost But Prospect of Rate Hikes Likely to Cap Gains

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Equity markets look set to end the week on a downward note after Federal Reserve Chair Jerome Powell indicated that US interest rates could rise as much as 50 basis points in May and the central bank is “committed to using our tools to get 2% inflation back.”

This negative outlook for equities has given gold a small boost and pushed the price back above $1,950 an ounce. However, the Federal Reserve’s “front-end loading” of its implementation of measures to try and wrestle back under control will put gold under pressure in the medium term. 

Live Gold Price Chart – $/g

Investors are now anticipating a half-point rate hike in both May and June with the likelihood of a third consecutive increase in July becoming ever stronger. In this environment of fast-rising interest rates, gold is likely to come under pressure as its lack of yield versus other asset classes reduces its appeal.

Gold’s upside and downside moves now look firmly capped with rising interest rates capping gold’s upward potential with the war in Ukraine, which looks to be worsening rather than any sign of peace in the short-term, providing a strong support. As such, gold is likely to trade in the $1,900 to $1,950 an ounce range over the medium term.

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