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Gold Shows New Trouble as Dollar Stymies Bullion’s Return to $1,800

·3 min read

By Barani Krishnan -- Gold bulls seldom have more than a couple of good weeks in a row these days.

It seemed on Wednesday that the longs in the yellow metal had used up their two-week pass after the dollar’s surge on renewed talk of outsized U.S. rate hikes stymied gold’s recent run-up and brief return to the $1,800 level.

The benchmark gold futures contract on New York’s Comex, December, settled down $13.30, or 0.7%, at $1,776.40 an ounce. Just a day ago, it hit a near one-month high of $1,805.

The spot price of bullion, more closely followed than futures by some traders, hovered at $1,765 after a session low at just beneath $1,755.

Gold ticked lower as the Dollar Index which pits the greenback against six majors led by the euro, hit a one-week high of almost 106.7, rebounding from a near three-week low of 104.9 on Tuesday.

The dollar regained its mojo after remarks in recent days from Federal Reserve regional chiefs such as James Bullard of St. Louis, Mary Daly of San Francisco and Loretta Mester of Cleveland that the central bank wasn’t done with raising interest rates to deal with inflation remaining stubbornly at four-decade highs.

After four increases since March that brought rates from nearly zero to as high as 2.5%, the Fed is nonplussed that inflation, as measured by the Consumer Price Index, hasn’t budged from four-decade highs, growing at a pace of 9.1% in the year to June.

San Francisco Fed Chief Daly said Wednesday that the United States can digest a 75-basis point rate hike for a third time in a row if necessary as the economy is not at the risk of another ‘Great Recession.’

“A 50 bps hike would be reasonable in September,” Daly said in a live-streamed speech that discussed the quantum likely for the Fed’s next rate increase. “However, if we see inflation galloping ahead unabated, [a] 75-bps hike may be more suitable. I do not expect a repetition of the Great Recession.”

The U.S. is currently in what some economists define as a technical recession after two quarters of negative GDP growth in the first half of this year. The so-called Great Recession itself occurred in 2008/09 as a markets meltdown triggered a global financial crisis.

Gold’s pivot towards $1,800 came after Fed Chair Jerome Powell said last week that the central bank couldn’t predict if it’ll hold on to the aggressive rate hikes it had carried out since March to beat inflation.

Gold is supposed to be a hedge against inflation but it has not been able to hold up to that billing for most of the past two years since hitting record highs above $2,100 in August 2020. One reason for that has been the rallying dollar, which is up 11% this year after a 6% gain in 2021.

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