Gold Price Continues To Ride Support From Rate Hike Pace

Gold prices are being supported by the recent comments from central banks.

The bullion price is higher for a fourth straight session as central banks hint at slower rate hikes.

Gold: Daily Chart

Gold: Daily Chart

Analysts pointed to weakness in the US dollar and purchases of gold by the Chinese central bank as the key reasons for the higher gold price.

Next week brings the latest Federal Reserve meeting, and the bank is expected to downshift to a half-point interest rate hike. However, traders will want further clarity on inflation and rate hikes. The $1,800 level is the gold resistance, which could be tested with the central bank meeting ahead.

The World Gold Council recently released its 2023 economic outlook and said: 

“The global economy is at an inflection point after being hit by various shocks over the past year.” “The biggest was induced by central banks as they stepped up their aggressive fight against inflation.”

“Going forward, this interplay between inflation and central bank intervention will be key in determining the outlook for 2023 and gold’s performance.” “Economic consensus calls for weaker global growth akin to a short, possibly localised recession; falling but elevated inflation; and the end of rate hikes in most developed markets.”

“That said, there is an unusually high level of uncertainty surrounding consensus expectations for 2023.” For example, if central banks tighten more than is necessary, this could result in a more severe and widespread downturn. Equally, central banks abruptly reversing course—halting or reversing hikes before inflation is controlled—could leave the global economy teetering close to stagflation. Gold has historically responded positively to these environments.

Next week’s Federal Reserve and European Central Bank meetings will be a vital part of the path ahead for gold. The $1,800 level is resistance, with traders eyeing the $2,000 level for a higher target.

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