Fed rate hikes are starting to appear and that’s good for gold

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(Kitco News) – After three months of sharp declines, the gold market is seeing some fresh bullish momentum. This comes at a time when the US economy contracted for the second consecutive quarter.

Economists and politicians are evenly divided over whether or not the United States is in a recession. The National Bureau of Economic Research (NBER) is the agency that will officially announce the recession, which occurs after months of research and debate; However, the traditional definition is when the economy contracts for two consecutive quarters.

Despite what politicians and economists might think, consumers are beginning to feel the effects of rising interest rates and ever-higher inflation. Data released by the US Conference Board this week showed consumer confidence fell for the month of July to its lowest level since February 2021. Growing pessimism is expected to affect growth further. Meanwhile, a Twitter poll this week showed that 80% of Kitco News followers think the US is in a recession.

While we will leave the debate about the recession to politicians and economists, there is no doubt that the US economy is slowing. The monetary policy of the Federal Reserve is starting to take effect, and according to market analysts, it is good for gold. On average, prices have risen 15% year-over-year over the past seven recessions, said Suki Cooper, precious metals analyst at Standard Chartered.

In the face of a slowing economy, the US central bank raised interest rates by 75 basis points. At the same time, the Fed said that more severe tightening would be justified if the data supported it.

However, what most investors have focused on is a slight shift in monetary policy. Powell also said that tightening should slow as the economy begins to feel the effects of higher interest rates.

“At some point it will be appropriate to slow down,” he said. “We loaded up on these very big price increases from the start. And now we’re getting close to where we need to.”

The market is now seeing that the Fed is nearing the end of its monetary policy cycle. In a recent interview, John Hathaway, senior portfolio manager at Sprott Hathaway Special Situations Strategy, said he thinks the Fed pivot could come as early as September as the economy continues to slow.

However, not all analysts are optimistic that gold is ready to rise again to $2000 an ounce. The US Department of Commerce’s core PCE price index released on Friday showed inflation stabilizing near a 40-year high of 4.8%.

“If inflation remains elevated, the Federal Reserve will continue to raise interest rates aggressively which could limit the rally in gold,” said Philip Strebel, chief market strategist at Blue Line Futures, in this week’s gold survey.

Streible said that with this new rally in gold, he is looking to take some profits on a push to $1800 an ounce.

Disclaimer: The opinions expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to conduct any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will be liable for losses and/or damages arising from the use of this publication.

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