(Kitco News) Gold is up nearly 8% in the last three months as markets are counting on the Federal Reserve to slow down its rate hike pace as inflation starts to cool. And this time around, the rally could take off, according to ING.
The precious metal crossed its 200-day moving average and climbed to nearly a six-month high of above $1,836 an ounce Tuesday. At the time of writing, February Comex gold futures were last trading at $1,823.40, down 0.12% on the day.
"On Tuesday, gold jumped to its highest price since June after U.S. consumer prices posted the smallest monthly gain in more than a year, sparking hopes that the U.S. Federal Reserve will ease the pace of interest rate hikes," said ING's head of commodities strategy Warren Patterson and commodities strategist Ewa Manthey.
Inflation surprised Tuesday, with the annual CPI print coming in at 7.1% in November after registering 7.7% in October.
If inflation is continuously coming down, this gives the Fed the reason to take a step back from its aggressive tightening pace. And a more reasonable Fed could mean a lower U.S. dollar and a significant boost for gold.
"Whilst inflation is still higher than the Fed's comfortable range, softening of inflation reinforces the view that the peak of the rate-hike cycle might be in sight," the strategists said. "A slowdown in rate hikes could increase the investment appeal of gold in the longer term."
So far this year, the Fed raised rates by 375 basis points, and it is scheduled to hike by another 50 basis points Wednesday afternoon. This historic tightening path has triggered a selloff in gold-backed ETFs throughout this year.
But a shift could be in sight as the year wraps up, and the gold price is looking for a more sustained rally.
"The interest rate hike this year has pushed investment money away from gold as investors chased higher returns (along with safety) in U.S. treasuries. Total known gold exchange-traded fund (ETF) holdings have dropped by around 13.2mOz from the peak in April this year as the Fed hiked interest rates," the Dutch bank said in a note. "A slowdown in rate hikes or the possibility of rate cuts later in 2023 could reverse the trend and help bring investment money back into gold ETF."
