Home / Markets / Commodities /  What will happen to gold if Fed continues to hike rates even in 2023

There is a slight hesitation in gold prices on Wednesday even when the dollar weakened slightly. The yellow metal is trading in a narrow range ahead of US Federal Reserve's meeting next week. Gold prices have witnessed a substantial upside in the past 2-3 weeks. Last week, the yellow metal even managed to shine above the $1,800 per ounce level, reaching a 4-month high. However, while investors gauge the potential pace of a rate hike in December policy by Fed, the real question is what will happen to gold if the FOMC continues to hike key funds rate in 2023.

In the early deals, the spot gold inched up to a little over $1,773 per ounce, while US gold futures edged higher to trade near $1,785 per ounce. On the contrary, the dollar dipped slightly against a basket of world currencies.

In general terms, a downside in the greenback makes yellow metal more attractive to buyers.

According to Emkay Wealth Management, after trading in a narrow range, the gold prices have gained ground in the past 2-3 weeks. Gold prices are trading at a 4-month high, it has managed to cross the $1800/oz level. Gold prices broke above the 1720 level after creating a base around the 1630-1640 levels.

The upside in bullion in the past few days is due to the Fed's commentary which hinted at a dovishness on the monetary policy going forward

Emkay believes gold prices may trade in higher ranges with 1730-1740 as the base, and could target 1830 and 1860.

Further, Emkay highlighted that the gold demand is reported to have been on a firmer footing in Q3 of this year. The demand came mainly from central bank buying, amounting to 400 tonnes for the quarter, and retail consumers. The easing of covid related restrictions in China helped push up demand in China and retail jewellery demand in India too supported the markets. Jewellery consumption rose to 523 tonnes, a 10 % year-on-year rise despite the adverse sentiment. Overall demand growth was 28% on a Y-o-Y basis. But the 227 tonnes of ETF outflows reflected the underlying weak sentiment.

However, Emkay also pointed out that even though a rally in gold prices was witnessed, the same may be restricted due to future rate hikes.

"The interest rates in the US is still not at its peak," Emkay's note added, "Fed may continue to hike rates well into 2023 as the inflation is still at 8% level, and far off the target of 2%."

Also, Emkay believes that other global central banks hiking rates may also restrict gold price rally. Also, in a scenario of a rising dollar, it is less likely that gold would be able to make much headway to higher levels. But moderation in central bank rate hikes could be beneficial for the yellow metal. But that may be some time from now.

At home, on MCX, in the opening deals, gold futures maturing February 3rd traded at 53,897 up by 137 or 0.25%. The commodity's intraday high and low were around 53,908 and 53,785 respectively.

Silver futures maturing March 3rd, picked up by 370 or 0.57% to trade at 65,784. The commodity touched an intraday high and low of 65,789 and 65,500 respectively.

FOMC's last meeting for the current year is scheduled between December 13-14. While US inflation data will be announced on December 13.


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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