Gold is continuing its slow slide towards $1,900 an ounce as doubts remain as to whether the Federal Reserve still has one more interest rate hike left in its current cycle, even following yesterday’s encouraging US inflation data.
Thursday’s release of the US core consumer price index showed the smallest back-to-back monthly gains in two years and increased the likelihood of the Fed being able to leave interest rates where they are when the committee meets next month. However, this is far from guaranteed with the San Francisco Reserve Bank President Mary Daly saying the Fed still has “more work to do” to bring inflation back down to its 2% target.
Gold has been on a downward trend since the middle of July on the realisation that its price, which has been trading at historically high levels for much of 2023, looks out of kilter considering how high-interest rates are around the world, with the physical metal’s lack of yield making other interest-bearing assets, such as bonds, more attractive to investors.
The reason that gold hasn’t fallen further or more sharply is due to the lingering concern that the global economy remains at risk of recession with market confidence still very fragile after the US banking crisis of March and April. Yet while there remains a bedrock of support for gold that will slow its price decline, the downward direction looks set to continue with the price reaction as and when it reaches $1,900 an ounce a key indicator of how strong the underlying support remains for the ultimate haven asset.
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