Gold’s positive run has come to an end with the price dropping to near $1,750 an ounce as the prospect of the Federal Reserve still needing to implement a series of significant interest rate hikes to bring inflation under control.
St Louis President James Bullard has urged the Fed to make another 75 basis points while Kansas City’s Esther George stated that “the case for continuing to raise rates remains strong”.
These views from two voting members of the Federal Open Market Committee have brought a reality check to the view that the US central bank may be more dovish in its approach following promising recent economic data with gold pulled down due to its diminished appeal at times of rising interest rates due to its lack of yield.
Gold has also suffered in the face of the US dollar strengthening on the back of these hawkish comments by the Fed officials, with gold’s typically inverse relationship with the dollar seeing its price fall while the dollar gains.
This reality check on the trajectory of future Fed rate rises has brought an abrupt reversal in gold’s attempts to climb back above $1,800 an ounce, and with the prospect of more large hikes in coming months, investors will be looking downwards to the July low below $1,700 an ounce as the next significant support rather than at any upward landmarks.
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