Gold shows early signs of recovery after hawkish Fed triggered price tumble
Gold has shown some signs of recovery after its price tumbled earlier this week following Fed Chair Jerome Powell’s hawkish comments to Congress about the potential need for further interest rate hikes.
The precious metal slipped from $1,856 per ounce on Monday morning to $1,809 per ounce by close of play on Tuesday.
Prices have since recovered to around $1,820 per ounce, dipping under and over the threshold in the previous day’s trading.
This includes a $6 climb from $1.913 per ounce to $1,919 per ounce in this morning’s trading.
Powell’s testimonies to the Senate Banking Committee and the House Financial Services panel have raised expectations of another 50 basis point hike at its next meeting on 22 March.
The chair of the world’s most influential central bank told Congress he is “prepared to accelerate rate hikes” if the pace of price increases in America stays high.
His comments rule out hopes that the Fed was drawing its aggressive campaign to fight inflation to a close.
Rupert Rowling, market analyst at Kinesis Money, argued gold was an “obvious casualty of this” due to its lack of yield making it less attractive at a time of rising rates.
Interest rates are already at 4.75-5 per cent while the dollar has proven itself remarkably robust since the pandemic.
However, he was optimistic about Gold’s short term outlook and expected gold to remain above $1,800 per ounce threshold.
“The fact that the markets are now pricing in these elevated levels should ensure that gold’s punishment when the rate decisions are announced is more muted,” Rowling said.
“Such has been the strength of buying by central banks, particularly China and Turkey, over the last year or so that the support at these lower levels remains very strong… so while significant gains are difficult for gold currently, further large drops are unlikely to be sustained,” he added.
But tomorrow’s US jobs report could nudge gold prices again.
“Gold once again ran into support around $1,800-$1,810 this week but that may only prove temporary if we get another hot jobs report tomorrow,” Craig Erlam, senior analyst at Oanda, said.
Fawad Razaqzada, an analyst at StoneX, said: “For gold to make a stronger recovery, we will have to see a surprise miss on Friday’s [Nonfarm payroll]. If that happens, it could support stocks, gold and bonds as traders question the likelihood of such an aggressive hike.”
“On a side note, the market may have gotten ahead of itself as Powell did not explicitly say that a 50bp is on the cards. So, there’s definitely room for disappointment if it ends up being a mere 25bp hike on March 22. This therefore makes the upcoming [Nonfarm payroll] and inflation data very important indeed,” he added.