Gold rallies to eight-month highs amid hopes of lower Fed interest rate hikes
Gold prices have stayed firm in today’s trading – with the precious metal peaking at $1,880 per ounce this morning, amid growing expectations of less aggressive hikes from the Federal Reserve (the Fed) this month.
Today’s peak price was within a hair’s breadth of the eight-month high it recorded yesterday afternoon when gold rallied to $1,881 per ounce.
This evening’s prices have dipped slightly to $1,874 per ounce, but remain 0.22 per cent up on yesterday’s closing price in the current trading session.
This comes with the US dollar weakening against other currencies after a robust 2022, with the metal enjoying an inverse relationship with the greenback.
There are also growing expectations the Fed will only raise interest rates 25-50 basis points next month, which are currently set at 4.25-4.5 per cent.
This more dovish outlook contrasts with the bullish approach taken by the central bank last year.
The Fed rapidly hiked rates over the autumn and winter to combat inflation, which peaked at a massive 8.2 per cent in September before easing later in the year to 7.1 per cent in November.
Gold also has a reputation as a flight-to-safety asset, which has also lured investors amid expectations of a sharp economic downturn.
Rupert Rowling, market analyst at Kinesis Money, said: “Gold’s great run continues with the precious metal now trading at its highest level for eight months. A weakening of the dollar alongside expectations that the last of the Federal Reserve’s large interest rate hikes is already behind us have created ideal conditions for gold to continue its impressive recovery that started back in early November.”
Gold recovers from September’s slump
Gold’s return to favour follows the safe haven metal sliding from last spring’s rally.
The metal soared to a whopping $2,043 per ounce in early March following Russia’s invasion of Ukraine, with subsequent volatility in the economy pushing investors towards gold.
Prices remained elevated through the spring before dropping over the summer amid both the firm response from the Fed and spiralling inflation, with prices dropping as low as $1,627 in September before stabilising in the winter.
Rowling argued the latest rally will be tested by the release of the latest US inflation data, which he dubbed a “key reference point” for “traders and investors to assess the macroeconomic situation of the world’s largest economy”.
He explained: “The one lingering concern about gold’s impressive rally is that it has been based on sentiment rather than fact. Gold gained in December even though the Fed implemented a rate hike and is still gaining now even though the Fed is again expected to increase its benchmark rate at its next meeting.
“It therefore would only take one or two negative data points or a surprise move by the Fed to cause an abrupt volte face for gold”.
Craig Erlam, senior markets analyst at OANDA, was curious to see if the market would correct any future upward swings.
He said: “For now, the yellow metal faces strong resistance around $1,880-$1,920, a region that we’ve seen a lot of activity around in recent years. Momentum remains favourable for the bulls but that may change now that price is testing that $40 range.”