Dollar, Rate Hikes Headwinds for Gold, But Recession Worries Provide Support in 2nd Half
By Yusuf Khan
The rising dollar and interest-rate hikes from central banks are
likely to act as headwinds for gold prices in the second half of
the year, but inflation worries and recession risks will help
demand for the precious metal, according to the World Gold
In its mid-year outlook, the WGC said rising interest rates from
the U.S. Federal Reserve and the Bank of England had pegged back
gold in the second quarter, having finished the first half of 2022
just 0.6% higher despite seeing significant price hikes at the
start of the war in Ukraine.
Going forward, higher nominal interest rates and a "potentially
stronger dollar" are likely to be two key headwinds for the
precious metal, with the WGC noting that most market participants
expect rates to rise further in the second half of this year.
"The broader thing will be what happens on the growth versus
inflation front," said John Reade, chief market strategist at the
WGC, in an interview.
"Whether hikes and the hikes priced into a curve are going to
bring down inflation and allow [Fed Chairman Jerome] Powell in a
meeting or two's time to signal a slowing in rate hikes or even a
pause--that looks really optimistic to me," he added.
The WGC said in its report that for now, it expects inflation to
linger through the second half of the year despite some analysts
expecting cooling, because of "commodity-related supply-chain
disruptions from the pandemic and the Ukraine war" and also "tight
labor markets, causing concerns that wages/labor costs may rise
This lingering inflation is likely to be a tailwind for gold,
helping to balance the effects of monetary policies, with the metal
historically performing well during similar periods. A "need for
effective hedges that overcome potentially higher correlations
between equities and bonds" would also help provide support, the
The WGC said consumers were likely to face hurdles going forward
and that a widespread economic slowdown would put "pressure on
consumer demand for gold, particularly with many markets seeing
notably higher local gold prices." In particular, Chinese and
Indian demand would struggle due to Covid-19 lockdowns and rising
economic worries, respectively.
Write to Yusuf Khan at email@example.com
(END) Dow Jones Newswires
July 07, 2022 08:14 ET (12:14 GMT)
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