After a fall in gold prices at the close of trading on Wall Street on Wednesday 16 June, gold prices rose again on Thursday, recovering some of the losses suffered in the previous session.
The fall in gold prices on Wednesday can be explained by the monetary policy meeting of the Fed (Federal Reserve), the equivalent of the US central bank, held on the same day. The Fed estimated that inflation in the US would reach 3.4% in 2021, well above the 2.4% forecast in March.
In addition, a majority of Fed members signalled that key interest rates – currently between 0% and 0.25% – should be raised twice by the end of 2023, in order to compensate for the recovery in US growth.
However, at Fed Chairman Jerome Powell‘s press conference, he tried to downplay the significance of what had been said earlier, reminding us that these views should be “taken with a grain of salt“; thus limiting the losses that could have been caused to the New York Stock Exchange.
Even so, gold prices still fell more than 2.5% on Wednesday, reaching their lowest level since May 6.
However, today, 17 June, gold was back on the rise, with prices rising on the stock market. This morning, gold was up 0.5% at $1,820.34.
“Gold was crushed overnight by a more hawkish Fed. […] Gold’s rally should be approached with caution as we have yet to see how a change in Fed tone will play out fully in the markets. Gold’s daily close below $1,797.50 will indicate that a deeper correction is in the offing” , said Jeffrey Halley, senior market analyst at OANDA.
Gold, considered a safe haven in terms of inflation protection, could see its appeal fade, however. Indeed, due to the Fed’s rate hike, the opportunity cost of holding bullion could increase, making ownership of the yellow metal less attractive.
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