Every time that stock markets try to rebound, new fears about a hawkish Fed curb the bullish impulse, while the U.S. Dollar remains strong against all the major currencies.
This has been the main story of the last few weeks, which is also having a negative impact on the precious metal sector. Indeed, the gold price, after having rebounded above $1,730 in the first few days of October, has slowed down to $1,670. Note that in the early trading this morning, there was an interesting rebound to $1,680.
Taking a fundamental point of view, the recent decline has no solid explanation. However, the reason behind it seems to be mostly linked to the expectations previously mentioned of further rate hikes from the Fed. At the moment, the futures markets are forecasting the interest rates to grow up to 4.75-5%, while a rate cut could come no sooner than in the May 2023 meeting – or later.
In the last 12 months, the central metric used by the Fed for monetary policy has been the inflation rate. Now, the Fed also needs to avoid the US Job market overheating, particularly after the historical low of 3.5% registered by the unemployment rate. Therefore, this scenario has not only curbed the stocks’ rebound, but also the recovery of bullion.
Greater still, the medium and long-term perspectives for gold remain positive, especially considering its safe haven role. Once the Fed interest rate peaks there is likely to be clearer space for bullion to finally start its recovery.
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