Gold is ending the week by holding onto much of its recent gains as the recent US inflation data that pointed to the pace of rising consumer prices having peaked, raising the prospect of the Federal Reserve needing to be less aggressive with future interest rate hikes.
This potential for a less hawkish rate trajectory has also weakened the US dollar and given more breathing space for gold to climb with the two assets having a typically inverse relationship. Add in rising geopolitical tensions between the US and China as well as concerns that the global economy is heading for recession, particularly following figures released by the UK today, and it points to a bullish outlook for gold.
However, while gold undoubtedly has a fair wind pushing it along currently, the precious metal’s upside potential will still be capped by the Federal Reserve’s next moves. While expectations on the next rate hike have softened from a 75 basis point increase to a 50 basis point one, the reality is that more interest rate hikes are likely.
As such the release next week of the Federal Open Market Committee’s minutes will be closely pored over by investors keen to gain a march on where the next interest rate move will land. It is important for gold to make gains while momentum is with it and regain the $1,800 an ounce threshold as the medium-term outlook still remains cloudy.
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