Gold under pressure amid further rate hike fears

Gold prices are set for steep weekly losses amid concerns over further rate hikes. The Bank of England’s higher than expected rate hike and the Federal Reserve’s hawkish signals have raised fears of tighter monetary conditions, resulting in a decline in gold prices.

At the time of writing, gold is trading at a three-month low after breaking out of a narrow trading range observed over the past month. Spot gold (XAU/USD) experienced a 0.1% drop, reaching $1,912.24 per ounce, while gold futures fell 0.1% to $1,921.60 per ounce by 08:00 GMT.

The primary catalyst for gold’s decline was the Bank of England’s rate hike, which exceeded expectations with a 50 basis point increase. This move was prompted by the UK’s overheated inflation situation. Thursday’s rate hike followed the release of data revealing an unexpected surge in UK inflation, indicating the possibility of additional hikes later in the year.

Gold’s outlook also dimmed due to Federal Reserve Chair Jerome Powell’s testimony before Congress. Powell reiterated that the central bank could raise rates at least two more times in 2023 due to U.S. inflation consistently surpassing the Fed’s target range. This projection of rising interest rates negatively impacts gold as it increases the opportunity cost of holding the precious metal.

Market participants are now positioning themselves for a high probability, over 70%, of a Fed rate hike in July. Consequently, most bets on a rate cut this year have been scaled back.