Gold has started a new trading week by dipping a little below the key psychological threshold of $1,800 an ounce as traders assess the likely next move by the Federal Reserve.
Gold has performed well recently on the back of positive data out of the US that showed that inflation may have peaked while new jobs continue to be created. This has given the Fed more leeway on its next steps and increased the likelihood of fewer and less aggressive future rate hikes to bring inflation back down to its 2% target.
However, while fewer rate hikes may now be needed, the reality is that more increases are still likely, including later this month. The difference is that the move is expected to be by 50 basis points rather than 75 basis points with the minutes from the Federal Open Market Committee, which are due to be released later this week, likely to give more clarity on how the Fed members see the next few months playing out.
It is interesting to note gold’s price action when it did climb back above $1,800 an ounce with today’s drop below that mark showing that there remain doubts about the medium-term outlook for the precious metal. Future rate hikes are negative for an asset that doesn’t pay a yield but that is partially offset by the increasing likelihood of a recession, particularly in Europe, which boosts gold’s haven appeal.
The next time gold regains $1,800 toehold, how long it manages to retain that mark will be a clear indicator of how strong the support actually is for the metal.
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