Central Bank Inaction Sends Gold Soaring

Gold soars as central banks seem reluctant to hike rates

Bullion.Directory precious metals analysis 08 November, 2021
By Peter Reagan
Financial Market Strategist at Birch Gold Group

With the Federal Reserve, the Bank of England and the European Central Bank all inclined to watch and see, the markets were quick to react to dovishness.

After a strong week, gold’s price jumped to a high of $1,818 on Friday with the surge only ending due to the trading day closing.

Bob Haberkorn, senior market strategist at RJO Futures, interprets the Fed’s latest comments as a clear indicator that it might not touch interest rates.

This would be huge for the gold market, as excessive optimism was perhaps the only headwind seen in recent weeks. Haberkorn accurately forecasted that gold would go past $1,800 by Friday after the Bank of England was the first to scratch its interest-rate hiking date on Thursday.

It follows the ECB’s statetements from November 3 that economic conditions would need to be closely monitored before any sort of hike is materialized.

With the indebted U.S. government passing a $1.75 trillion bill on Saturday, there is no shortage of bullish sentiment in the gold market after what many felt were a few stagnant weeks.
 

Why gold was stuck in a “Groundhog Day” scenario

MKS PAMP Group’s head of metals strategy Nicky Shiels recently elaborated on the $1,750-$1,800 trading range that gold has found itself sitting in for some time, along with why it took so long to break out of it.

Gold’s delayed reaction after the Fed’s Wednesday announcement showcased the kind of bearish intraday trades that have continued to push gold downwards towards $1,760 every time it approached $1,800.

On the other hand, when the metal does approach the $1,750-$1760 range, nobody seems too interested in selling due to what Shiels refers to as a possible bear trap.

Shiels also points to growing consensus that gold is starting to bottom out around this support level, as evidenced by the kind of pent-up waiting that caused such a momentous surge in just one day on Friday.

Nonetheless, both the Fed’s dovishness and the many tailwinds seem to be finally catching up to gold’s price. The climb began in the absence of hawkish statements from the Fed, ones that were highly unlikely yet also seemed expected by many.

While Fed Chair Jerome Powell insisted that the central bank is keeping inflation in check and it’s all those pesky supply-chain snarls causing prices to rise, it’s easy to doubt his claims. Today’s inflation rate is already two-and-a-half times their alleged target.

With what looks like a dovish U-turn regarding interest rate hikes, the markets are now free to start accounting for more tangible factors relating to gold’s price.

This article was originally published here

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