Gold price up after Fed official downplays chances of imminent rate hikes

Gold prices rose for a second day in a row Wednesdayfollowing commentary from a Federal Reserve official that played down the possibility of imminent interest rate hikes.

Spot gold was up 0.7% to $1,783.70 an ounce by 11:50 a.m. EDT, near its weekly high. US gold futures also gained 0.7%, trading at $1,784.10 an ounce in New York.

Bullion has fluctuated recently as traders attempt to gauge the pace at which pandemic-era stimulus will be reined in by central banks.

Ongoing inflation, driven by the global energy crisis and supply chain constraints, has sparked widespread concerns that rate hikes could come sooner than expected, a painful prospect for the safe-haven metal.

However, recent mixed economic data from the US is casting doubts among investors about an early hike, which weakens the dollar and raises commodity prices.

On Tuesday, Fed Governor Christopher Waller told Bloomberg the US central bank should begin tapering its bond-buying program next month, though rate increases are probably “still some time off.”

He added that if inflation keeps rising at its current pace over the next few months, Fed policymakers may need to adopt “a more aggressive policy response” next year.

Upcoming speeches and discussions by officials including Randal Quarles, Mary Daly and Chair Jerome Powell will also be keenly watched ahead of the Fed’s meeting next month.

Hedge fund manager Paul Tudor Jones said in a CNBC interview on Wednesday that it’s time to double down on inflation hedges, including commodities.

“What they’re telling you by their actions, is that they’re going to be slow and late to fight inflation,” said the founder and chief investment officer of Tudor Investment Corp.

Tudor Jones also advised investors not to hold bonds due to increasing signals that the Fed will not be quick to fight inflation.

Bob Haberkorn, senior market strategist at RJO Futures, shared similar views in a Reuters report:

“There is a global concern on what is going on with supply crunches and the lack of action from the Federal Reserve. It seems like the Fed is behind the ball on inflation.”

“With supply chain and inflation issues, how will stocks continue to make new highs?” Haberkorn said, adding that “there is a flight to safety into gold that will go on for the next couple of months.”

Longer term, analysts still expect gold to face downward pressures as soon as the Fed starts reining in its monetary stimulus.

“Gold is trading above what we deem as fair value at this moment, and I believe this premium is due to the market pricing inflation fears,” Howie Lee, an economist at Oversea-Chinese Banking Corp., told Bloomberg.

“With the Fed due to begin monetary normalization, I still believe gold will face more downward pressure in the coming year.”