Gold price has bounced off Tuesday’s lows as the Russia-Ukraine crisis, and subsequent rise in the demand for safe havens, balance out talks on Fed’s interest rate hikes.
Fundamentals
On the one hand, the market is still digesting Jerome Powell’s hawkish comments on interest rate hikes. During his speech in the National Association for Business Economics conference on Monday, the Fed Chair stated that “the labor market is very strong, and inflation is much too high”. He noted that the situation is jeopardizing the otherwise strong recovery of the US economy.
These details formed the basis of a more aggressive tone than in the past week. US inflation is currently at its highest level in four decades at 7.9%. In the past week, the US central bank raised interest rates by a quarter percentage-point. This was the first hike in over three years.
In his Monday’s speech, Powell indicated that the Fed is prepared to take a more aggressive stance in dealing with the inflationary pressures by increasing rates by a half percentage-point in the next May meeting if necessary.
An environment of higher interest rates tends to weigh on gold price as it increases the opportunity cost of holding the non-yielding asset. This explains why Powell’s speech pushed the precious metal to a one-week low.
Earlier on Wednesday, the benchmark 10-year Treasury yields rose to a three-year high of 2.41%. While it has since eased to 2.37% as at the time of writing, it has held steady above 2.00% for close to two weeks. Rising US bond yields will likely continue to curb gold price’s upward potential.
Nonetheless, the precious metal will continue to find support in the ongoing
