🔥 Premium AI-powered Stock Picks from InvestingPro Now up to 50% OffCLAIM SALE

Gold Shows New Trouble as Dollar Stymies Bullion’s Return to $1,800

Published 08/03/2022, 04:25 PM
Updated 08/03/2022, 04:27 PM
© Reuters.
XAU/USD
-
DX
-
GC
-

By Barani Krishnan

Investing.com -- Gold bulls seldom have more than a couple of good weeks in a row these days.

It seemed on Wednesday that the longs in the yellow metal had used up their two-week pass after the dollar’s surge on renewed talk of outsized U.S. rate hikes stymied gold’s recent run-up and brief return to the $1,800 level.

The benchmark gold futures contract on New York’s Comex, December, settled down $13.30, or 0.7%, at $1,776.40 an ounce. Just a day ago, it hit a near one-month high of $1,805.

The spot price of bullion, more closely followed than futures by some traders, hovered at $1,765 after a session low at just beneath $1,755.

Gold ticked lower as the Dollar Index which pits the greenback against six majors led by the euro, hit a one-week high of almost 106.7, rebounding from a near three-week low of 104.9 on Tuesday.

The dollar regained its mojo after remarks in recent days from Federal Reserve regional chiefs such as James Bullard of St. Louis, Mary Daly of San Francisco and Loretta Mester of Cleveland that the central bank wasn’t done with raising interest rates to deal with inflation remaining stubbornly at four-decade highs.

After four increases since March that brought rates from nearly zero to as high as 2.5%, the Fed is nonplussed that inflation, as measured by the Consumer Price Index, hasn’t budged from four-decade highs, growing at a pace of 9.1% in the year to June.

San Francisco Fed Chief Daly said Wednesday that the United States can digest a 75-basis point rate hike for a third time in a row if necessary as the economy is not at the risk of another ‘Great Recession.’

“A 50 bps hike would be reasonable in September,” Daly said in a live-streamed speech that discussed the quantum likely for the Fed’s next rate increase. “However, if we see inflation galloping ahead unabated, [a] 75-bps hike may be more suitable. I do not expect a repetition of the Great Recession.”

The U.S. is currently in what some economists define as a technical recession after two quarters of negative GDP growth in the first half of this year. The so-called Great Recession itself occurred in 2008/09 as a markets meltdown triggered a global financial crisis.

Gold’s pivot towards $1,800 came after Fed Chair Jerome Powell said last week that the central bank couldn’t predict if it’ll hold on to the aggressive rate hikes it had carried out since March to beat inflation.

Gold is supposed to be a hedge against inflation but it has not been able to hold up to that billing for most of the past two years since hitting record highs above $2,100 in August 2020. One reason for that has been the rallying dollar, which is up 11% this year after a 6% gain in 2021.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.