The gold price remained largely unmoved by the latest rate hike from the US central bank last night. The decision had already been priced-in by markets and neither the hike itself, nor Chairman Powell’s press conference after, resulted in any significant change for precious metals.
As had been expected, the Federal Reserve hiked by a further 0.25% points, taking US rates to a 22-year high of 5.25% - 5.5%. This is the 11th hike in 12 meetings, continuing an 18-month trend that the US economy has so far proven quite resilient to.
With the rate hike turning out as expected, eyes turned to any forward guidance from the Chairman, but Jerome Powell was non-committal in his following press release. Powell stated that they could hike further if the data warrants it but could equally pause again. "We're going to be going meeting by meeting”.
With no clear indication on the direction the Fed might take next the dollar index also remained mostly flat, and this is why gold hasn’t moved much. Some sign of what the Fed will do next would have given some momentum to either direction, but the wait-and-see message from Powell gave neither side the certainty to trade yesterday.
With US inflation already at 3%, and rate hikes typically taking time to feed through and impact prices, it could be argued the Fed have hiked high enough now and the peak is in. Until markets have a firmer guarantee of this though they remain unsure, and the potential for further hikes is keeping the dollar and gold steady.
The Bank of England will meet next week for their decision on UK rates, and face inflation that is stuck much higher at 7.9%. As such they are almost certain to hike again, but it remains to be seen if they will stick to a small 0.25%-point hike like the Fed or will try a more aggressive 0.5%-point hike given how sticky inflation is proving to be in the UK.
Gold is still up 2.5% in the past month in USD but has been fairly rangebound for the past two weeks. The metal is slowly creeping up, passing $1,980 per ounce this morning, but is waiting for the spark to push it towards the key $2,000 per ounce level. With the Fed not meeting now until late September, gold will likely be trading on US economic data for the next few weeks. Signs of the US job market slowing down, and further low inflation will suggest job done for the Fed, weakening the dollar and pushing gold higher. If job numbers continue to come in high, and inflation sticks rather than falling, then they could hike again.
In the UK, if the BoE go for a higher 0.5% rate hike, that will likely result in some further strength for Sterling and will push gold down further in GBP. A smaller 0.25%-point hike could be seen as not enough, and see the pound weaken against the dollar. The current direction of inflation in the UK is so different to the US it’s likely the two economies face a very different outlook in 2024 that will likely be to the detriment of Sterling.