In the world of gold, things aren’t looking too shiny at the moment. The price of the yellow metal has remained relatively stagnant on Friday, but June has been a brutal month. What’s causing this downward trend, you ask? Well, it all boils down to the growing fears surrounding the Federal Reserve’s stance on interest rates.
Just this week, gold took a major tumble, hitting a three-month low, as Fed officials sent out hawkish signals. Jerome Powell, the Chair of the Federal Reserve, made it clear that the bank is considering raising interest rates not just once, but at least two more times this year. That news shook the market, denting gold’s safe-haven appeal.
To add fuel to the fire, U.S. gross domestic product (GDP) data underwent a sharp upward revision, revealing the resilience of the world’s largest economy. This unexpected strength has raised concerns about the Fed’s room to manoeuvre, fueling worries that interest rates may continue to rise. And you guessed it, that’s bad news for gold.
At 09:05 GMT, spot gold (XAU/USD) was stuck in neutral, trading flat at $1,904.01 per ounce. But all eyes are on the $1,900 support level, with analysts cautioning that a sustained drop below this key mark could trigger a wave of technical selling in the market.
Although gold managed to recover some losses after touching $1,891 on Thursday, it’s close to venturing into the $1,800s
Rising interest rates aren’t exactly gold’s best friend. As rates go up, it becomes more expensive to invest in gold compared to the dollar and government debt. This notion has been rough on gold throughout 2022, and it’s continuing to weigh heavily on the metal in 2023.
The Federal Reserve isn’t the only one sending hawkish signals. The European Central Bank and the Bank of England have joined the party, exerting additional pressure on the yellow metal.
