Gold continues to trade above $1,950 an ounce as traders and investors brace themselves for a busy week filled with interest rate decisions by central banks across the world, including the US Federal Reserve’s much-anticipated announcement on Wednesday.
While the prevailing view remains that the Fed will pause on further interest rate hikes when the committee meets later this week, stubbornly high inflation allied to a strong US jobs market means a surprise increase can’t be fully ruled out. As such the gold price is trading on the assumption that US interest rates will stay where they are with any hike likely to send the precious metal crashing down towards $1,900 an ounce.
Recent surprise hikes from the Bank of Canada and the Reserve Bank of Australia have reminded investors that a Fed pause is not a foregone conclusion with all markets trading cagily as a result before confirmation arrives on Wednesday.
Assuming a pause is indeed confirmed, then gold is likely to stay where it is with the current price already reflecting this light relief to an asset that typically struggles in times of rising interest rates. However, while a pause will be positive in the short-term for gold, the medium-term outlook is less promising as a resurgent stock market freed from the shackles of a hawkish Fed may see investors allocate more funds to risk assets such as equities and dwindle gold’s safe-haven appeal.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.