By David Brough
LONDON – All eyes are on the Federal Reserve this week for clues on the future direction of the gold price, with a 25 basis points (bp) U.S. rate hike widely expected on July 26, 2023.
But will it be the end of the upwards rate cycle after the recent cooling of U.S. inflation? The latest data show U.S. consumer prices up 3.0 percent in the year to June, the lowest level since March 2021.
The markets will be closely watching for commentary from Fed officials after the likely rate hike, signalling the future monetary policy outlook.
Signals of a pause in further U.S. rate hikes could prove to be bullish for gold, as bullion bears no yield, possibly auguring for a renewed test of USD $2,000 per ounce.
“The Fed is almost certain to hike its policy rate by 25bp to between 5.25% and 5.50% at next week’s FOMC meeting, but we increasingly believe that will prove to be the peak,” Capital Economics chief North America economist Paul Ashworth told Kitco News on July 21.
“Despite the ‘higher for longer’ rhetoric from officials, a more marked decline in core inflation and easing in labour market conditions in the second half of this year will eventually persuade the Fed to pivot and cut rates aggressively next year.”
However, if sentiment underpins a hawkish stance, and further tightening, by U.S. monetary authorities, prices of the yellow metal could retreat, as any continuing climate of rising rates would make non-yielding bullion less appealing to investors.
Disclaimer: any opinion expressed in this article is solely that of the author and should not be considered as investment advice.