The statement of Russian President Vladimir Putin about the beginning of partial mobilization in the country has noticeably fueled investors' interest in gold. In the eyes of investors, the precious metal once again acts as the most reliable asset in which you can invest without risk. Thus, gold quotes are rising quite confidently on the charts on Wednesday.
Although being too confident in the dollar and the expected increase in interest rates in the United States do not allow the precious metal to accelerate to full potential.
By 15:10 London time, gold futures were trading with an increase of 0.15% – at $1,667.31 per ounce.
If the Federal Reserve decides to raise rates by 100 basis points, there is almost no doubt that the precious metal quotes will fly below $1,600, reaching a new low since the beginning of the year.
Many analysts believe that gold will continue to suffer losses before a recovery occurs. Perhaps this conviction is related to the Fed's determination not to deviate from its tough approach on the issue of rates until the rampant inflation in the United States finally subsides. The problem is that this self-confidence and determination of the central bank in the fight against inflation does not look too convincing yet.
If we recall the rate hike by 75 basis points in June, then the consumer price index (reflecting the inflation rate) peaked at 9.1% per annum. And it became a new 40-year high! Since then, price pressure has become noticeably weaker, for example, the annual consumer price index was 8.5% in July, and at 8.3% in August. But a 0.8% reduction in prices over two months with two (!) rate hikes of 1.5% on average is a very weak, if not almost invisible result.
It is possible that the Fed will raise the rate by 75 basis points in November and December, and as a result it will be at the level of 4.50 - 4.75% (at the beginning of the year it was at the level of 0.00 - 0.25%). But this is later, and now it is almost impossible to make forecasts about the consumer price index in the short term. Most likely, it will be less than 8%, but not less than 7.5%.
The inflation rate that the Fed is aiming for is the coveted 2%. But no one knows how long it should take to reach this level. Moreover, is it even possible to achieve it by 2024?
But how will the FOMC's decision on rates affect the gold market?
Over the past seven sessions, gold prices have fallen by almost 4% and remain in the territory below $ 1,700. On Friday, spot prices reached the lowest in two and a half years – they are below the $1,654 mark.
Gold is entirely at the mercy of the dynamics of the dollar, which is rising again to 20-year highs reached in August. If the dollar retreats after the announcement of a rate hike, along with it the yield of 10-year US Treasury bonds will decrease, then gold will finally get a breather.