Price of Gold Fundamental Daily Forecast – Traders Anticipating Rate Hikes from Most Major Central Banks

Gold futures are trading sideways to lower on Wednesday as investors mull over the strong possibility of aggressive rate hikes from most major central banks in an attempt to curb rising inflation. Although gold is seen as an inflation hedge, higher interest rates and bond yields raise the opportunity cost of holding bullion, which yields no interest.

Meanwhile, a slightly weaker U.S. Dollar may be helping to delay another sharp break. The dollar eased for a fourth straight session, though it stayed at elevated levels, making greenback-priced bullion less expensive for buyers holding other currencies.

At 11:20 GMT, December Comex gold is trading $1724.00, down $4.10, -0.24%. On Tuesday, the SPDR Gold Shares ETF settled at $159.58, up $0.42 or +0.265.

Fear of Aggressive Central Bank Rate Hikes Capping Prices

Gold is under pressure from fear of aggressive monetary policy moves and higher bond yields.

European Central Bank

On Thursday, European Central Bank (ECB) policymakers are expected to consider raising rates by a larger-than-expected 50 basis points at their meeting on Thursday to tame record-high inflation, two sources with direct knowledge of the discussion told Reuters.

Although a sharp rise in the Euro is weighing on the U.S. Dollar Index, dollar-denominated bullion appears to be shrugging off the news.

US Federal Reserve

Next Wednesday, the Federal Reserve is widely expected to raise its benchmark interest rate 75 basis points. Although policymakers may discuss the possibility of a 100 basis point hike, several Federal Open Market Committee (FOMC) have already publicly indicated they’d vote against such a move.

Bank of England

In the U.K., stronger-than-expected U.K. jobs data released earlier in the week, heightened fears of more interest rate-hikes by the Bank of England.

Reserve Bank of Australia, Reserve Bank of New Zealand

Finally, the Australian and New Zealand Dollars are posting a fourth straight gain on Wednesday after traders narrowed the odds of more aggressive rate hikes ahead as central banks globally rushed to catch up with inflation.

The Reuters report on the larger-than-expected ECB rate hike also fueled talk the Reserve Bank of Australia (RBA) might step up the pace of tightening by hiking by 75 basis points at its policy meeting in August.

Markets imply around a 30% chance of such a move in the 1.35% cash rate, and a peak next year at 3.75% or more.

Meanwhile, RBA Governor Philip Lowe on Wednesday emphasized higher rates were needed to anchor inflation expectations and suggested the neutral level for policy was at least 2.5%.

“While a close call, we continue to expect the RBA to increase the cash rate 75bp in August and 50bp in September, before slowing the pace of hikes to achieve a modestly contradictory rate of 3.35% by year-end,” said Andrew Boak, an economist at Goldman Sachs.

Short-Term Outlook

Although we may see a few short-covering rallies, gold is going to have a hard time mounting a prolonged rally with so many central banks poised to raise rates aggressively over the next several months.