Posted 9th September 2022

Gold’s Tentative Recovery Shows Support Remains Despite Hawkish Central Banks

gold feature line graph

Gold is ending the week by making a tentative recovery, underlying the strength of support that remains for the precious metal at $1,700 an ounce despite the hawkish macroeconomic environment.

A week in which the European Central Bank has raised its benchmark rate by 75 basis points and with the Federal Reserve expected to implement a similar sized move later this month wouldn’t naturally be conducive for gold.

Yet while today’s gains towards $1,725 an ounce shouldn’t be misconstrued as the start of a significant recovery, the fact that gold hasn’t sunk further shows that investors still see a role for gold with economies across the world on the brink of or already in recession.

Gold fell sharply earlier in the summer – losing $100 in a matter of weeks – when traders realised that positive US economic data wouldn’t soften the Fed’s aggressive approach to bring inflation back down to its 2% target.

Fed Chair Jerome Powell’s latest comments are consistent with his speech at Jackson Hole last month, and have caused a limited impact on the gold price with the likelihood of another 75 basis point hike later this month now priced in.

This week’s price action suggests that gold has found its natural level for the time being with the threat of a global recession as well as the ongoing war in Ukraine providing enough support to keep it above $1,700 despite the strength of the US dollar and the likelihood of many more rate hikes over the coming months.

Therefore for the price to materially move it would need the next move by the Fed to greatly surpass or underwhelm expectations.

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