Gold Defies Logic as Fed Credibility Takes Center Stage
The Federal Reserve is set to conclude its two-day monetary policy meeting on Wednesday, and gold prices are defying conventional logic. Despite hotter-than-expected inflation data and rapidly escalating rate-hike expectations, gold briefly topped $4,360 an ounce last Friday.
Market participants note that the biggest test for gold this week may not be the hike itself, but whether the Fed can rebuild policy credibility amid political pressure and market skepticism.
Zaye Capital Markets Chief Investment Officer Naeem Aslam believes this price reaction may be more noteworthy than the CPI data itself. He points out that traditional models have not broken down, higher inflation does raise the probability of a hike, and higher rates do increase the cost of holding gold.
However, gold may now be trading on more than just inflation, Aslam said. 'CPI is the trigger. Credibility is the story.'