For gold traders in particular, they’ll be looking for clues on where to next for bullion. Bullion bulls had a grand ‘ol time a couple of weeks ago, pushing prices to about $4 of its all-time high of $2074.87 (registered back in August 2020). However, since then, the precious metal has been brought back down to earth, even dipping below $1900 earlier this week, as markets refocused their attentions to the Fed’s path forward for US interest rates.
The US central bank confirmed market expectations by raising interest rates this week by 25 basis points – the Fed’s first hike since December 2018.
But what surprised markets was how many hikes the Fed said could be in store for the rest of 2022: six – that’s one hike at each of the FOMC’s remaining six scheduled meetings for 2022. And then a few more hikes are set to follow in 2023, potentially bringing interest rates closer to 2.8% (as opposed to the near-zero rates for the past two years amid the pandemic).
Overall, the Fed’s message to the markets is that their #1 priority is to combat red-hot inflation, perhaps even at the expense of economic and jobs growth.
Given such an outlook, no wonder investors were willing to pare down their holdings of gold. After all, the precious metal does not pay any interest or offer any yields. In times when rates are climbing, investors tend to prefer other assets such a higher-yielding debt or dividend-paying stocks. Still, that doesn’t mean gold is down for the count.
Fed Chair Jerome Powell, as well as many other key central bankers around the world, have already spoken of the tremendous uncertainties emanating from this military conflict. And this is where gold’s safe haven status has been assured. In recent sessions, spot gold has been testing its 21-day simple moving average as its immediate resistance level.