Gold stabilizes, hopes for a u-turn before 2023

Gold price has retreated but eventually was able to stabilize ahead of the looming FOMC’s rate hike and Ukraine peace talks

Gold held steady as traders have worries concerning the monetary tightening path by the US central bank after economic data, including Tuesday’s CPI and Wednesday’s PPI, pointed to elevated inflation in consumer and producer prices.

Producer prices fell for a second month in August, although it increased 8.7% from a year ago, the Labour Department data showed Wednesday. The print come after hotter than expected consumer price data released the previous day and feed into mounting concerns about the breadth and pace of US inflation.

Still hot inflation will likely keep the Fed’s hawkish interest-rate hikes on track for the coming meetings. Markets have priced in another 75 basis point increase for next week’s meeting, while others were speculating an even larger move.

The Fed’s hawkish monetary tightening has caused the precious metal to trend lower this year as higher interest rates put pressure on non-yielding assets. Persistent outflows from gold-backed exchange-traded funds have also acted as a headwind.

The persistence of inflation continues to support an aggressive effort by the Fed. Markets expect continued outflows from money managers and ETF holdings to weigh on prices.

The precious metal’s price has stabilized at $1696.79 later during the US session, but earlier on the day, it was up 0.2% to $1,705.91 an ounce at 11:03 a.m. in New York. The Bloomberg Dollar Spot Index weakened slightly after rising 1.2% Tuesday. Silver, platinum and palladium all gained.

The monetary and fiscal policy tightening represent the turning of the screw that could keep gold broadly on the defensive this year and next year. The recent tightening is expected to further impact gold. However, the market and traders still hope for gold to touch the average $1,820 an ounce this year before sliding to $1,750 in 2023.