As so often in recent months, the markets once again focused on central banks’ monetary policy this week, with a total of ten central bank meetings and their interest rate decisions. In addition, Fed governor Powell faced US lawmakers’ questions in Congress.
Bank of England takes major interest rate step
I summary, both Powell and most other monetary watchdogs who met this week were extremely concerned about the persistently high inflation rates. The unexpectedly high UK figures, released on Wednesday, were of particular interest, prompting the Bank of England yesterday to raise key interest rates significantly by a further 0.50 percentage points, whereas analysts had almost unanimously forecast a smaller increase of 0.25.
Fed: more rate hikes likely to fight inflation
All of this was somewhat of a déjà vu, as three hours earlier the Norwegian central bank had taken the same measures and thereby also gone contrary to analysts’ forecasts. When Powell pointed out once again that most Fed council members are expecting two more rate hikes this year – with markets only pricing in a single one – the picture solidified: Inflation is here to stay, and the central banks are taking robust counteraction.
This development is reflected primarily in a further rise in government bond yields almost globally. The higher the yields, the more headwinds gold prices face – after all, gold investments do not pay interest. It is no wonder, then, that the yellow metal has most recently been struggling.
Gold faces decline in US dollars and euros
While the precious metal still traded at 1,933 US$ per ounce early last week Thursday, it climbed to a weekly high of 1,968 on Friday. By midday on Tuesday, it was more or less holding above 1,950. Following the Fed governor’s statements indicating a high likelihood for further interest rate hikes, and some central banks finally raising key interest rates more sharply than expected, the precious metal slipped to around 1,910 US$ per ounce this morning and currently trades only slightly firmer at 1,915.
The Xetra-Gold price is also lower, especially since the euro increased moderately against the US dollar. From last week Thursday morning’s 57.35 € per gram, it closed the week at 57.70 but took a turn for the worse this week from Tuesday onwards, reaching 56.10 yesterday. This morning, Xetra-Gold was expected to start trading somewhat firmer at 56.35.
In the coming week, half-year-end dispositions could provide for market movements in an otherwise quiet week, data-wise. Further robust interest rate steps by the central banks are now largely priced into the bond markets, which might in turn slow the slide in gold prices.
I wish all readers a happy and calm weekend.