Gold is under pressure following the confirmation of the European Central Bank’s latest hike as well as the suggestion that the Federal Reserve still has more hiking to do after yesterday’s pause.
The prospect of future interest rate rises by the Fed has lessened the appeal of physical gold, as its lack of yield makes other, interest-bearing assets more attractive instead with gold’s price dipping below $1,930 an ounce to its lowest level in three months.
The contradictory message coming out of yesterday’s Fed announcement, a hawkish pause, highlighted the difficulty the US central bank still faces in bringing inflation back down to its 2% target without tipping the country into recession. Recent positive data on both the inflation and jobs front suggest the world’s largest economy is holding up well and this is likely to increase risk appetite among investors to the detriment of gold and its safe haven qualities.
In this context, gold is likely to drift lower and will do well to stay above $1,900 an ounce for much longer. The peaks of first the US banking crisis and then the prospect of a Fed pivot now look likely to have been the high point for gold this year and the question now is how much support remains for the asset to slow its slide.
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