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Gold shining against Swiss franc and British pound as both central banks leave rates unchanged

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(Kitco News) - It appears that global monetary policy tightening has peaked as both the Swiss National Bank and the Bank of England announced that they would leave interest rates unchanged on Thursday.

Both decisions were a dovish surprise as markets expected the central banks to raise interest rates by 25 basis points. The SNB was the first to announce early Thursday, saying it would maintain the policy rate at 1.75%. Markets were looking for an increase to 2.00%.

Meanwhile, the Bank of England kept its Bank Rate unchanged at 5.25%; markets were looking for rates to increase to 5.50%.

In global currency markets, gold is outperforming the Swiss franc and the British pound. These are the only two currencies gold is seeing gains against.

Spot gold last traded at CHF55,677.10 an ounce, up 0.21% on the day. At the same time, gold last traded at £1,565.31 an ounce, up 0.13% on the day. In comparison, gold is seeing sharp losses against the U.S. dollar as December gold futures fell below initial support at $1,950 an ounce. December gold last traded at $1,940.90 an ounce, down more than 1% on the day.

In a press conference after the decision, SNB President Thomas Jordan said the battle against inflation is not yet over and that the bank is closely monitoring second-round effects; however, he also noted that the central bank "could afford to take a break from hikes."

Although the SNB left interest rates unchanged, it would not rule out further rate hikes through the rest of the year.

At the same time, the SNB also said that it will still use the exchange rate to "provide appropriate monetary conditions" and, will likely continue to sell FX.

The Bank of England held rates unchanged, noting that inflation is dropping sharply, even if it remains above its 2% target.

"CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation," the central bank said in its monetary policy statement.

Gold prices holding around $1,950 as Powell remains hawkish, but markets see no more rate hikes

The central banks also noted that inflation risks remain skewed to the upside.

The SNB and BOE decision came a day after the Federal Reserve left its interest rates unchanged in a widely anticipated move. However, Fed Chair Jerome Powell maintained his hawkish bias, saying the central bank could keep interest rates in restrictive territory longer than expected.

Jennifer McKeown, chief global economist at Capital Economics, said that she sees signs of a tipping point in global monetary policies as global growth starts to weaken.

"As we head into 2024, the loosening cycle will take hold. By this time next year, we anticipate that 21 out of the world's 30 major central banks will be cutting interest rates," she said.

While global monetary policy appears to be peaking, gold might continue to struggle as analysts expect the U.S. dollar to outperform other major currencies.

"The fundamental story remains in favor of the greenback as the U.S. economy is in a much stronger position than the other major economies such as the eurozone or the U.K.," said currency analysts at Brown Brothers Harriman. "With firm U.S. data and a hawkish Fed, this should feed into further dollar strength."

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.