Gold price outlook as safe-haven appeal offsets rate hike bets

Gold price has held steady after the FOMC meeting minutes. Granted, higher Treasury yield have continued to curb its upward potential. Nonetheless, it is finding support in the Russia-Ukraine war and heightened inflationary pressures.

Fed minutes

Based on the FOMC meeting minutes released on Wednesday, Fed officials hold that one or more rate hikes by 50 basis points in future meetings will be apt. In its next meeting, which will be in May, investors expect the central bank to be more aggressive in dealing with inflation by increasing hikes by a half-percentage point. This also includes reducing its balance sheet by about $95 billion per month.

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On the one hand, an environment of higher interest rates and rising Treasury yields will curb gold price’s upward potential. Nonetheless, the Fed may not be able to raise rates as fast as needed. As such, high inflation will continue to boost the precious metal in coming months.  

Russia-Ukraine war

In the ensuing sessions, gold price will also be reacting to the ongoing Russia-Ukraine war. About a week ago, the precious metal dropped to its lowest level since late February as a reaction to news that Russia would scale back its military presence near Kyiv and Chernihiv. Granted, Ukraine and the US were sceptical of the announcement.

Indeed, Russian troops have continued to bomb various cities within Ukraine; a move that has pushed the West to impose further sanctions. The US now wants Russia excluded from G20 forums. According to Janet Yellen, the Treasury Secretary, the US will boycott G20 meetings in Indonesia if Russian officials are present.

At the same time, the European Union is yet to approve new sanctions. One of the main unresolved issues is whether banning Russian coal will affect the current contracts. As has been the case over the past 43 days, the invasion and subsequent sanctions have increased the demand for safe havens such as gold.

 Indeed, $1,900 had been an evasive level since June 2021. However, the attack has turned it into a steady support zone that may remain that way for as long as the crisis in eastern Europe persists.