Gold is trading comfortably above $1,900 an ounce as a weaker dollar helps offset the slight unwinding of fear trading on a positive day for equity markets.
While the Federal Reserve is starting to turn more dovish with recent comments by its officials hinting at interest rates close to where they need to be to tame inflation, the European Central Bank has been much more hawkish. The ECB was slower than the Fed to start hiking rates and looks likely to continue increasing rates for longer as a result, with Klass Knot stating the need for 50 basis point hikes in February and March.
The potentially divergent stances of the ECB and the Fed on their monetary policy this year highlights both how much more significant the words and the actions of the Fed is to the gold price than the ECB and also how early the prospect of the Fed easing up on rate hikes has been priced in to gold. The US central bank is, after all, still expected to increase its benchmark rate when it meets at the end of this month.
For now, gold seems to be able to brush off any bearish factors, such as the risk of recession fading a little and a more optimistic tone on stock markets, and has built up sufficient support to keep it close to its highest level since April. But a lot of this is down to a perception of what the Fed will do, therefore if the Fed doesn’t conform to expectations then the gold price could be in for a sharp shock.
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