What's next for gold prices as attention shifts to Fed Minutes? [Video]

After an explosive start to August, Gold prices have pulled on routine profit-taking as trader’s attention now shifts to the minutes of the Federal Reserve’s latest monetary policy meeting.

Over the last 12 months, inflation has rapidly spread to every corner of the economy with the cost of unavoidable living expenses from Food, Fuel, Housing, Clothing and Energy prices – rising at double-digit annual rates for the first time in over 40 years – further deepening the Cost-of-Living Crisis and heaping more pain on household budgets.

A string of recent much hotter-than-expected inflation readings have enviably spurred the Federal Reserve’s efforts to restore price stability, which intensified in June after officials abandoned previously-laid plans to deliver a half-point interest rate hike and instead dropped a bombshell on the markets by raising interest rates by a “super-sized” 75 basis points.

In July, the Federal Reserve raised interest rates by another super-sized 75 basis points for the second month in a row.

The latest rate hike means the central bank is in the throes of the most aggressive cycle of monetary tightening since 1981. It follows a 50 basis point rate hike in May and a 75 basis points rate hike in June – the first of that magnitude since 1994.

There’s no denying that we are in an environment, where the Federal Reserve is faced with a tough choice: record high inflation or the risk of recession. Faced with that choice, the Fed’s recent actions clearly signal they have chosen a recession.

After raising interest rates by a whopping 200 basis points at its last three consecutive meetings, Fed Chairman Jerome Powell signalled that another super-sized hike could be on the cards for September.

In fact, those odds hardened on Tuesday after Natural Gas prices on both sides of the Atlantic blasted through all-time record highs.

European Natural Gas prices soared to a high of €251, while U.S Natural Gas prices skyrocketed above $9.45 – notching up a whopping gain of over 350%, from this time last year.

Put another way, that’s the equivalent of both benchmark futures contracts now trading at more than $400 a barrel of Oil.

As traders know – there is a strong correlation between Inflation and Energy prices.  When Energy prices accelerate at a red-hot pace, so does Inflation.

Even Jerome Powell himself admits that “one of the biggest challenges faced by the Federal Reserve, which they really can't do anything about it – is elevated Oil and Energy prices”.

Looking ahead, all eyes will be on the Federal Reserve's July Monetary Policy Meeting Minutes, scheduled for release on Wednesday.

With inflation spiralling out of control, expectations are now running high that the Fed could be forced to raise interest rates aggressively again next month. Traders will be scrutinizing every word of the minutes for clues on the size of the Fed's next rate hike, which will likely open the door for fresh volatility ahead.

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions: