Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Gold Notches Unlikely Win as Fed Again Ratchets Up Rates

Commodities Sep 21, 2022 05:01PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters.
 
XAU/USD
+0.02%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
Gold
-0.02%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DX
-0.04%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Barani Krishnan

Investing.com - Gold bulls feared the worst as the Federal Reserve headed for its much-anticipated third straight 75-basis point rate hike of the year.

Yet, it was all’s well that ended well for longs in the game who actually managed to see their first price gain in three sessions despite the central bank threatening more substantial rate hikes before the year is done.

The benchmark gold futures contract on New York’s Comex, December, settled up $4.60, or 0.3%, at $1,675.70 per ounce. The session high for the day was $1,696.65 — virtually hitting the $1,700 mark that gold bulls have aspired to return to since falling off that price point on Sept. 15.

The spot price of bullion, which is more closely followed than futures by some traders, was up $9.03, or 0.5%, at $1,673.84 by 16:35 Eastern U.S. Time (20:35 Greenwich Mean Time). Spot gold’s peak for the day was $1,688.06.

“The hawkish Fed projections are a rather grim outlook for the economy and that could eventually trigger a resumption of a safe-haven role for gold,” said Ed Moya, analyst at online trading platform OANDA. “The Fed acknowledged that we’re at the very lowest levels of what is restrictive and that they are prepared to soften this labor market. This inflation fight is going to get ugly for the economy, but right now it seems the Fed will be done hiking in February.”

“Gold will remain vulnerable to selling pressure if inflation does not continue to ease, but it could start to stabilize now.”

Sunil Kumar Dixit, technical chartist for gold at SKCharting.com, said gold could build towards $1,740 if it maintained its current momentum.

"Oversold conditions make gold vulnerable to fierce short covering if critical resistance zones are breached," said Dixit in an Investing.com outlook on gold published on Wednesday. "A sustained break above this zone puts the 50-Day Exponential Moving Average of $1,726 and the previous week's high of $1735 as a challenge."

U.S rate hikes have some ways to go before the Fed considers a pause or reduction, with the likelihood of another 125 basis points being added before the end of this year, Chairman Jerome Powell said Wednesday.

Powell's comments came after the FOMC announced a third straight 75-basis point rate hike since June. It was the fifth hike for the year that brought key lending rates to a peak of 3.25% from a mere 0.25% in February.

And the Fed isn’t alone with tightening though: Central banks in the United Kingdom to Switzerland are contemplating higher rates too this week. ​

An additional 1.25% in increases would bring U.S. rates to a peak of 4.5%. Asked if this would be “restrictive enough” for the Fed’s aim to discourage inflation, the central bank chief replied: “We'll be looking at a few things. First, we'll want to see growth continuing to run below trend, to see movements in the labor market showing a return to a better balance between supply and demand, and clear evidence that inflation is moving back down to 2%.”

To a related question, Powell said, “clearly, today we're just moved into the very lowest level of what might be restrictive.”

He warned of job losses and cuts in wage gains as the Fed embarked on fighting inflation, which was its main game.

“We can't fail to do that,” he said, referring to the central bank’s mission against price growth. “That would be the thing that would be most painful for the people that we serve. We have got to get inflation behind us. I wish there were a painless way to do that. There isn't. What we need to do is get rates up to the point where we're putting meaningful downward pressure on inflation. That's what we're doing. We haven't given up the idea that we can have a relatively modest increase in unemployment.”

As for the US economy itself, the Fed projected a Gross Domestic Product growth of 0.2% for all of this year and 1.2% for 2023. That would compare with the 2021 GDP growth of 5.7% as the United States recovered robustly from the business lockdowns associated with the pandemic from a year ago.

Economists have warned that the Fed could end up pushing the United States into a deep recession with its sharpest rate hikes in four decades, saying the high-flying housing sector and one-time ebullient stock market could end up as the Fed’s victims.

Powell acknowledged those concerns on Wednesday, saying he could not guarantee the U.S. economy will remain recession-free. Here’s where gold could see a prop as a safe-haven, as OANDA’s Moya suggests.

“We have always understood that restoring price stability while achieving a relatively modest increase in unemployment and a soft landing would be very challenging,” Powell said. “No one knows whether this process will lead to a recession or if so, how significant that recession would be.”

Preliminary estimates show that GDP likely contracted by 0.6% in the second quarter after a 1.6% slowdown in the first quarter. Two straight quarters of GDP growth typically places an economy in a recession.

Gold Notches Unlikely Win as Fed Again Ratchets Up Rates
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
jiten kumar
jiten kumar Sep 23, 2022 5:09AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
too much harassment in his face
znao sam
znao sam Sep 22, 2022 1:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
boost worthless paper.....We will see in 2 month from now....
Martin Babei
Martin Babei Sep 21, 2022 7:25PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The FED is deliberately going for a prolonged period of high inflation and low economic growth, by raising rates just enough to keep inflation high. This strategy is to reduce government dept by inflating but keeping inflation at bay. So get ready for 5 years of stagflation. And be thankful to the FED for inflating us government dept away. The FED may over do it though. So buy gold and silver as a safe haven. No as an inflation hedge. Even more, the Ukraine Russia war is escalating. More reasons to buy. US China tension to add. Good luck trading
SunilKumar Dixit
SunilKumarDixit Sep 21, 2022 7:25PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Martin. Thanks for the perspective. However, the short term rebound is more driven by short covering which is yet to start properly and bears may prefer to look for a more favourable positions to open fresh shorts at higher resistance zone.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email