Waiting on the Fed

18 ก.ย.

On Monday gold hit an all-time intra-day high, trading just a tad below $2,590. It pulled back a touch yesterday and was holding steady in early trade this morning. Gold’s behaviour is often tied to interest rates. It’s said that gold does best when interest rates are low as investors can’t earn interest from holding gold. So, when interest rates are high, gold is an unattractive investment, relatively. There’s some truth in this, although gold’s current behaviour suggests that gold benefits from the expectation of lower interest rates. It’s also said that gold is the ultimate protection against inflation. There’s truth in this too. But inflation is a long way below its peak from summer 2022, and yet gold seems to be doing fine. The problem is of course, that central banks raise interest rates to curb inflation so those two dynamics (rising inflation and rising interest rates) would appear to offset each other. Far better to consider gold on its own. It is currently in a bull market and there are no indications so far that it has peaked. But being in a bull market doesn’t mean that something simply goes higher all the time. There are dips, pull-backs and serious corrections. No one knows what the Fed will do tonight, or how what they do will affect gold. But with so much uncertainty around, now is a good time to overview risk parameters.