Posted 17th October 2022

Gold Struggles to Make Gains on Fresh Demand for Large Fed Hikes

gold dollar bullion bar

Gold starts a new trading week trading around $1,650 with the ongoing prospect of more large interest rates by the Federal Reserve before the end of the year continuing to weigh on the price.

Another high inflation print last week has increased the likelihood of the Fed hiking rates in both November and December by 75 basis points with the Bank of St Louis President James Bullard mentioning his preference for “front-loading” rate increases when speaking at the weekend. 

In this environment where central banks are more focused on the size of any rate hikes rather than whether to raise interest rates at all, it is hard for gold to find any significant support with the precious metal’s lack of yield making other interest-paying assets, notably bonds, more attractive to low-risk seeking investors. 

Yet while it is hard to see gold making significant gains, the prospect of the Fed, and other central banks across the world, continuing to implement further hikes has largely been priced in and is now reflected in gold’s plummet from the highs of close to $2,000 an ounce seen as recently as April.

As such, gold now finds itself in a situation where any significant dips towards $1,600 an ounce prompt an uptick in physical demand from Asian buyers, providing a floor on the price, while the US hawkish monetary policy prevents gold from climbing above $1,700 an ounce.

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