XAU/USD Reversal Might be Premature.All eyes on Fed
Gold prices saw a slight recovery this past week, with XAU/USD rising about one percent. While it was not much, that was the best weekly performance since the middle of June. A combination of a weaker US Dollar and falling Treasury yields likely benefited the anti-fiat yellow metal. Is there more scope here for gold to continue rallying?
To understand the reversal in gold better, you need to investigate what the markets expect the Federal Reserve to do ahead. All eyes are on its next interest rate announcement on Wednesday, where another 75-basis point rate hike is seen. This follows still-high US inflation, with the headline rate running at 9.1% y/y and consistently beating economists’ estimates.
Yet, a more hawkish Fed ought to boost the US Dollar and bond yields, working against gold. That has been the broader story this year, hence the persistent decline in XAU/USD. Global monetary tightening is also working against gold. But, it seems that this past week, the markets focused more on what could happen further down the road.
To understand the reversal in gold better, you need to investigate what the markets expect the Federal Reserve to do ahead. All eyes are on its next interest rate announcement on Wednesday, where another 75-basis point rate hike is seen. This follows still-high US inflation, with the headline rate running at 9.1% y/y and consistently beating economists’ estimates.
Yet, a more hawkish Fed ought to boost the US Dollar and bond yields, working against gold. That has been the broader story this year, hence the persistent decline in XAU/USD. Global monetary tightening is also working against gold. But, it seems that this past week, the markets focused more on what could happen further down the road.
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