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THE SINKING SHIP OF GOLD

Harvest Global Markets :

The precious metal gold is on the path of losing its shine after it dented below its strong psychological support of $1700 per ounce yesterday. As of today, gold was trading at a slump of $1677 at 1130 HRS PKT.

If we glance at the market sentiment of a month ago, investors had a beaming light of hope that the Federal Bank might take a dovish stance after witnessing the withering of the economy; however, after Jerome Powell’s speech at Jackson Hole, the market digested the fact that the U.S may experience a hat-trick of 75 basis point interest rate hike. Most investors swallowed the bitter pill, making the villain of the gold, the U.S Dollar Index, more powerful; consequently, the greenback is hovering around at a price of a two-decade high, i.e., 110.

Another black cloud on gold was brought by U.S monthly CPI report. After the previous month’s benign report of CPI (0.0%), investors were anticipating a cut in CPI by 0.1%; nevertheless, the actual data recorded an increase in monthly inflation by 0.1%, despite the elimination of gasoline taxes during the summer season. After the release of the monthly inflation report, a small number of investors brought a new picture of a 100 basis points hike in the interest rate on September 21st, 2022, which has negatively impacted the safe haven yellow metal.

Thus, one aspect of the market is crystal clear: the Federal bank will not pivot its tightening monetary policy until it sees a substantial decline in the yearly inflation rate (currently around 8.3%).

The battle against inflation will always be ugly for the economies as it collides with the primary economic objective of growth.

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