(Kitco News) - The gold market continues to struggle to attract any significant buying momentum as global monetary policy continues to shift toward higher interest rates.
This new tightening cycle was led by the European Central Bank, which increased interest rates by 25 basis points last week amid rising inflation pressures. This week, the Federal Reserve signaled support for at least one rate hike before the end of the year in its updated economic projections, and the Bank of England is also joining the hawkish trend.
On Thursday, the BoE left its Bank Rate unchanged at 3.75%; however, two committee members voted to raise interest rates by 25 basis points. According to consensus estimates, economists had expected to see only one vote in support of a rate hike.
In its monetary policy statement, the central bank noted its difficult position as energy prices threaten to push inflation pressures higher while the economy continues to weaken.
“Monetary policy cannot influence energy prices but is being set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably. The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy,” the central bank said. “The risk of material second-round effects in price and wage-setting, against which policy needs to lean, is greater the longer higher energy prices persist. But the labour market continues to loosen, and signs of a weakening economy could contain inflationary pressures. Interest rates faced by households and businesses remain higher than prior to the conflict, which will act to reduce inflation over time.”
The gold market is not seeing much reaction to the BoE’s monetary policy decision. The yellow metal is struggling to hold its gains this week in the face of potentially higher interest rates worldwide. Spot gold last traded against the British pound at £3,211.84 an ounce, down 0.37% on the day.
Gold’s losses against the pound closely match the broader price action. Spot gold last traded at $4,247.60 an ounce, down 0.20% on the day.
Following the BoE’s monetary policy decision, markets are expecting to see about 35 basis points of tightening this year, roughly unchanged from expectations ahead of the meeting.
