Gold price edged higher on Wednesday as the bulls defended the support zone at $1,660.80. Nonetheless, it remains below the critical zone of $1,700 as has been the case since the beginning of the week. The Fed meeting minutes indicated that high interest rates may remain in place for much longer as the bank strives to deal with soaring inflation. The US CPI data scheduled for release on Thursday will offer cues on whether inflation is peaking.
Fundamentals
Gold’s status
In recent months, gold price has been under pressure from the ultra-hawkish Federal Reserve. Granted, the precious metal is a conventional hedge against inflation and safe-haven in times of economic and geopolitical turmoil.
Indeed, this status is what pushed it to a level less than $5 below its all-time high of $2,076.77 in early March. Since then, it has held steady above $1,650 with the exception of mid-September. Prior to February 2020, that had been a steady multi-year resistance zone.
Fed’s stance
Even so, the environment of high interest rates has been weighing on gold price for months now. Over a span of 6 months, it has dropped by close to 20%. So far, the Fed has hiked rates by 300 basis points. Notably, it is willing to continue with its aggressive policy tightening in coming weeks as it strives to deal with the decades-long inflation.
Indeed, this was evident in the Fed meeting minutes released on Wednesday. It highlighted that “participants judged that the Committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the Committee’s legislative mandate to promote maximum employment and price stability”.
Besides, the Fed officials noted that inflation has so far been showing little signs of abating. As a result, traders will be keen on the US CPI data set for release on Thursday for cues on the status of inflation. Economists expect a reading of 8.1% YoY compared to the prior month’s 8.3%.
With the bearish drivers, the previously steady support zone of $1,708.55 will likely remain a key resistance zone in the ensuing sessions. On the lower side, the bulls are striving to defend the support at $1,650; barring the bears from retesting the YTD low hit in late September.
