Federal Reserve Chair Jerome Powell’s surprisingly hawkish comments have sent gold down towards $1,800 an ounce, close to its lowest level this year.
Powell’s testimony has seen markets up where they see US interest rates reaching by another 50 basis points to 5.6% with gold an obvious casualty of this repricing with its lack of yield making it less attractive at times of rising rates. With the Fed Chair speaking again today, gold investors will be hoping that today’s message doesn’t cause any further shocks.
While the short to medium-term outlook looks challenging for gold, with the prospect of a series of interest rate hikes still to factor in over the coming months, including later this month, the fact that the markets are now pricing in these elevated levels should ensure that gold’s punishment when the rate decisions are announced is more muted.
A key threshold for gold will be the $1,800 an ounce level it is closing in on. Such has been the strength of buying by central banks, particularly China and Turkey, over the last year or so that the support at these lower levels remains very strong. Therefore any dips below $1,800 are likely to prompt further buying activity to see it quickly regain that threshold. So while significant gains are difficult for gold currently, further large drops are unlikely to be sustained.
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