Fed Chairman Powell unnerved the precious metals market by signalling a 50 point hike

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Gold has made another push at $2,000 per troy ounce in the last week, a level it has only closed above once, in August 2020. The price immediately fell, with bullion selling about $1,935 making the run-up easy to dismiss as just another head fake for a metal that has plodded along while its commodities counterparts have skyrocketed in price.
As the dollar soared to its highest level since June 2020 on expectations of faster-than-expected rate hikes in the United States, gold was poised for its worst week in five. Chairman Jerome Powell of the Federal Reserve revealed his most aggressive strategy to managing inflation to date, stating that a 50 basis-point raise is on the table for the May policy-setting meeting. Traders are now pricing in the possibility of half-a-percentage point increases at each of the next three meetings.
Inflation-adjusted rates turned positive for the first time in two years this week, owing to expectations of a stronger pace of monetary tightening. Because bullion generates no interest, positive real rates lessen its appeal. Due to Russia’s war in Ukraine and fears about inflation and global growth, gold is being supported by haven demand.
Meanwhile, the Fed’s Beige Book, which is published eight times a year, provides a qualitative analysis on regional economic conditions. Despite the fact that activity was generally strong during the survey period, the report this week highlights a growing sense of concern about the economy’s direction in the future months.
Though outlook for precious metals for shortterm looks sideways, longterm outlook is still positive.

 

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