Gold News

Dollar Falls Ahead of the Fed, UK Gold Price Sinks to Test 5-Year Uptrend

The GOLD PRICE rallied against a falling US Dollar on Wednesday as traders prepared for the Federal Reserve's June decision and economic forecasts, almost-universally expected to see it 'skip' raising interest rates for the 11th time running while making 'hawkish' comments on the need to keep rates higher for longer to slow the pace of inflation.
Gold's price in Dollars regained $10 per Troy ounce from yesterday's 1-week low of $1940, more than 6% below the fresh all-time spot market high hit after the Fed raised its interest-rate ceiling to a 17-year record of 5.25% in early May.
Following yesterday's slowdown in US consumer-price inflation for May, new data today said US producer-price inflation slowed harder than analysts expected last month.
With the European Central Bank now expected to raise by 0.25 points tomorrow and the Bank of England set to hike by half-a-point next week following stronger-than-expected UK jobs data – plus a woeful performance from BoE boss Andrew Bailey in front of lawmakers and a fresh 15-year high in government borrowing costs – the Dollar meantime hit the lowest in 3 weeks on its trade-weighted major currency index.
That saw the gold price flirt with 6-week lows in Euro terms after dipping through €1800 late Tuesday, while the UK gold price in Pounds per ounce touched a new 14-week low beneath £1540, flirting with the steep uptrend begun almost 5 years ago, as Sterling hit its highest Dollar exchange rate since mid-May's 13-month highs near $1.268.
Chart of the UK gold price in Pounds per ounce. Source: BullionVault
"The Eurozone, the UK, and Swiss central banks are lagging the Fed in this rate-hike cycle," says a wealth management note from Swiss financial giant UBS, "and we now see upside for all three currencies against the USD."
"We [also] think gold is likely to break its all-time [Dollar] high later in 2023 and forecast prices will hit $2250 by June 2024. Robust central-bank demand, broad USD weakness, and rising US recession risks should all support gold."
Global equities meanwhile rose ahead of the Fed's June decision on Wednesday, extending the MSCI World Index's run of 14-month highs and taking Germany's Dax index to new all-time records.
More than 16% higher year-to-date, Frankfurt is the rich world's best performing major bourse so far in 2023 despite Germany entering a 'technical' if not 'economic' recession on the Economy Ministry's latest forecast.
Betting through interest-rate futures now puts a near 100% chance on the Fed making no change today. But looking at end-2023, the effective Fed Funds rate will rise from today's level of 5.08% – in line with the Fed's own end-2023 forecasts – to 5.17% per annum according to the market consensus reported on the CME derivatives exchange's FedWatch tool.
That's the market's highest end-2023 rates prediction since 9th March, just before the mini-crisis in US regional banking and the day after Federal Reserve chairman Jerome Powell told lawmakers in Congress that "The ultimate level [for rates in this cycle] is likely to be higher than previously anticipated...We need to continue to tighten."
Gold prices that day fell towards new 2023 lows at $1809 per Troy ounce on Powell's testimony, before surging by almost 15% over the next 8 weeks to retest all-time record highs. 
Silver on Wednesday was meanwhile less volatile than gold ahead of the Fed's June decision, also rebounding but failing to reclaim the $24 per ounce level.
New UK data meantime said the world's 5th largest economy grew slightly in the 3 months to April, but industrial output continued to shrink by almost 2.0% per year with the independent NSIER research institute putting GDP dead-flat across May.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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