Gold price rises on Fed decision
06 May 2022
Friday 6 May 2022
In this week's market report:
Gold turns back up
Fed raises rates by 50 basis points
RBA lifts rates
Russia demands rubles for energy
Gold versus bitcoin? Which is king?
Before you go...
Dear Investor,
US dollar gold price [XAUUSD] Daily chart
Source: Trading View
(Click to enlarge)
Gold turns back up: Gold has rebounded this week after the Federal Reserve Bank announced a May rate hike. Au dipped down to US$1,848 ahead of the FOMC. Overall spot gold is 0.29% higher to US$1,900.
Fed raises rates by 50 basis points: The Federal Reserve Bank raised rates by 50 basis points this week to a federal funds rate of 0.75–1%.
Fed chair Jerome Powell says only 50-basis-point increases are expected at future meetings.
The central bank will also reduce its bond-buying program by US$95 billion per month.
Powell noted the Fed considers 2–3% the neutral fed funds rate.
The change was baked in: The 0.50% increase was priced into markets. The Fed setting expectations of similar price hikes throughout the year enabled Au to turn up. A more aggressive policy stance would likely have caused gold to fall.
All precious metals lift this week: Gold has helped lift all other precious metals, with platinum seeing the biggest gains this week.
Bulls, Au needs to break out first: Au needs to break above US$1,920–25 to get excited about a rally.
Bears, the falls might not be over yet: Spot gold may retreat back to the US$1,880s, and without support here, may look for the US$1,820s.
Gold in Australian dollars does its thing here: The Australian gold price has fallen slightly this week, down 0.29% to AU$2,638. The Australian dollar, on the other hand, has risen 1.24% to 71.92 US cents for the week, muting any spot gold gains.
RBA lifts rates: The Reserve Bank of Australia increased rates from 0.10% to 0.35% — a 25-basis-point jump — at the May meeting. This is the first increase in the cash rate since November 2010. Australia has only seen decreases in the cash rate for 11 years and five months.
While the market was expecting the RBA to increase rates, momentum for a May move up only began two weeks ago when the Australian consumer price index started to look hot. The size of the move was unexpected, however, as the consensus was the RBA would lift rates by 15 basis points.
RBA Governor Philip Lowe has signalled that Australians should prepare for the cash rate to return to normal levels and that ‘over time it is not unreasonable to expect interest rates would get to 2.5%.’
Another 0.25% increase is expected in June.
Russia demands rubles for energy
Europe’s energy crisis continues: Europe receives 40% of its gas from Russia. The are jitters across EU markets as the risk of Russia blackmailing other EU members into forcing them to pay for fossil fuels in rubles increases.
Russia recently attempted to force Poland and Bulgaria to pay for natural gas with rubles. Converting euros into rubles would help support the Russian currency. Both countries refused, and Russia’s Gazprom cut off their gas supply.
It’s reported that Italian energy firm Eni is setting up a ruble-denominated account at Gazprombank as a ‘precautionary measure’, says Bloomberg.
A representative from Gazprom says four European gas buyers have already paid in rubles but no mention of which EU members.
Source: CBC
Ending reliance on Russian fossil fuels plan now sped up: There has been a push to reduce dependence on Russian fossil fuels for years. The ongoing Russian invasion has seen many EU members work to expedite this.
Germany is working towards ending its reliance on Russian energy by the end of the Northern Hemisphere summer to avoid the risk of being blackmailed by Russia come winter.
As a result, Germany has secured a €1.5 billion (AU$2.2 billion) order for non-Russian natural gas and will ‘slow’ its exit from coal, writes Reuters.
Europe is Russia’s biggest market for gas. The EU seeking gas products elsewhere will see less money flowing into Russia.
Gold versus bitcoin? Which is king?
Gold expert, macro commentator, and friend of ABC Bullion, Jim Rickards, shares his thoughts on which asset has a brighter future, gold or bitcoin? Listen to his most recent interview here.
Inside our office this week…
This week our sister company ABC Refinery attended the RIU Resources Roundup. ABC Refinery’s Global Head of Institutional Markets was the keynote speaker who opened the event. Click below to hear Nick’s presentation ‘The outlook for gold: War, stagflation, the cost of money and China…’:
Warm regards,
The ABC Bullion Team