Even with the slight recovery over the last two days, gold is set to end another month in which it has made a loss, extending the downward trend that started in April.
This week has seen several senior Federal Reserve officials reiterate the central bank’s commitment to continuing to increase interest rates to try and bring inflation under control. In such a hawkish environment with monthly rate hikes from central banks worldwide, gold has fallen out of favour with its lack of yield making other interest-bearing assets more attractive in its place.
The gains made in the last few days demonstrate that while gold is under pressure, support for the precious metal hasn’t completely evaporated with escalating tensions from the war in Ukraine, maintaining demand for the haven asset. Furthermore, the need for central banks, notably the Bank of England this week, to step into markets to support them demonstrates for some investors gold’s value as an asset that doesn’t rely on the whims of banks in the same way that fiat currencies do.
As September draws to a close and October begins, the short to medium-term outlook for gold remains bearish with inflation likely to remain stubbornly high for a while longer yet forcing central banks to keep on hiking rates. Investors will be relying on the key threshold of $1,600 an ounce to stave off further slides and hope that given the hawkish stance of the Fed, in particular, is well known by now, the price impact isn’t as severe in October.
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