Gold prices are on the rise but the Fed rate decision and recession risks continue to add pressure. The Fed’s recent interest rate hikes have led to a doubling of the 30-year fixed mortgage rate. It also has hammered risk assets. Global growth forecasts are weakened and the Ukraine war is expected to have a negative impact on economic activity. But the economy is still strong, with unemployment rates hovering around a five-year low, and the labour market is still healthy.
This means the Fed has a difficult task. The Fed has to try to push the economy into a slowdown without entering a recession. But if it slows down too much, it could leave workers unemployed. Historically, a mild recession is positive for gold. And if the Fed’s hawkish stance continues, the dollar could strengthen, putting even more downward pressure on the gold price.
The Fed’s decision to raise the benchmark interest rate three quarters of a point was a significant move. In addition, the Fed has said the economy is weaker than it was previously thought. Although the Fed has said it’s working to slow down the economy, it isn’t done. As a result, the Fed’s rate hikes are likely to continue.
However, while the rate hikes will continue into the second half of the year, they aren’t expected to be as large as in earlier months. Instead, the Fed may only raise rates by a small amount in November and December. While this would put pressure on the dollar, the economy might be slow enough to lessen the effect of the interest rate hikes on the economy.
If the economy does enter a recession, it will likely be less severe than in 2022. According to the IMF, the likelihood of a recession next year is not very high, though the risk of a recession is still high. Additionally, a recession could lead to lower incomes for some workers. That might make it easier for the Fed to ease monetary conditions and allow the economy to recover.
With the global economy continuing to suffer from rising inflation, many central banks are raising their interest rates to combat the surge in inflation. These higher rates are a necessary component of the Fed’s fight against the worst inflation outbreak in more than four decades. Unfortunately, they may be more damaging than expected. Some economists have warned of the risks of a global recession and other negative events.
Amid this turmoil, gold is largely viewed as an alternative to fiat currency. The Fed’s stance is a crucial catalyst for the metal. When the Fed raises rates, gold prices generally rally. Currently, gold is trading at around $US1,943 an ounce, down 7% from the start of March. However, gold is now nearing the peak of the triple bottom that took place on November 3 and has already broken several key price resistances.
The Fed is expected to raise the federal funds rate by a substantial 75bps on Tuesday, bringing it to the highest level since December 2008. This is in addition to the three quarter point rate hikes that the Fed has already implemented. Meanwhile, the US Dollar rose by 0.5