GOLD MARKET COMMENTARY – Gold hits 3-month peak as US Federal Reserve seen slowing pace of rate rises

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Gold prices hit a 3-month high in mid-November as the dollar eased on growing sentiment that the US Federal Reserve will likely slow down the pace of interest rate rises after lower-than-expected inflation data.

Gold touched $1,772.57 per ounce on November 15, after hitting its highest level since August 15.

Gold prices had risen towards the end of the second week of November after US consumer price inflation in October came in at 7.7 percent, below expectations, signalling that while the Fed will likely continue to raise rates to control high inflation, the pace of rate rises may be less steep into 2023 than had been expected.

Gold bears no yield, and so when the pace of interest rate rises in the world’s largest economy slows down, bullion may appear a little more appealing compared to alternative, interest-bearing assets.

In a note to clients, Nicky Shiels, head of metals strategy at MKS PAMP, said the biggest factor supporting gold’s latest rise is shifting investor expectations regarding the Fed’s monetary policy.

Although it is expected to continue to raise rates through early 2023, the pace is expected to slow down. At the same time, inflation pressures will remain high.

“With a Consumer Price Index (CPI) release on Thursday (November 10) suggesting that the US inflation rate might at last just be beginning to turn down with a below expectation 7.7 percent annual increase in October, gold, equities and bitcoin all surged,” wrote Lawrie Williams, precious metals commentator for bullion dealer Sharps Pixley.

“Gold continued to advance and ended the week above $1,770, its highest level since mid-August.”

Williams added: “While equities and bitcoin look vulnerable to falls, to this observer at least, as global economies appear to be sinking into recession, and cryptocurrencies are mired in the FTX collapse, gold and silver may well be at the start of a continuing uptrend, or at least the bulls will be hoping so.”

Some analysts see gold potentially heading towards resistance at $1,800.

As the dollar fell, pressured by expectations for a slowing pace of US rate rises, the pound gained ground against the greenback, touching a three-month high in mid-November.

A key focus will now be the Autumn Budget on November 17, expected to deliver tax rises and public spending cuts, which may weigh on the pound amid expectations of a slowing pace of rate rises by the Bank of England.

Chancellor of the Exchequer Jeremy Hunt, supported by Prime Minister Rishi Sunak, appears focused on reassuring financial markets that the UK is taking serious and determined steps to keep control of the public finances, a much-needed focus to get a grip on inflation, following the surge of volatility that ensued from previous prime minister Liz Truss’s mini-budget in late September.

(Disclaimer: Any opinions expressed in this article are solely those of the author and should not be construed as investment advice.)

Picture credit: Annamaria Cammilli, courtesy of Vicenzaoro

Picture credit: Annamaria Cammilli, courtesy of Vicenzaoro