Gold prices hit a two-month high last week as US bond yields continued to fall and investors were looking to invest in the safe-haven metal amid concerns over tensions between Russia and Ukraine. Today, it is trading at $1,836 levels. Analysts’ market comments and forecasts cryptocoin.com compiled for our readers.
Michael Hewson: I don’t think there will be any surprises in the markets
Investors are watching the Federal Reserve’s two-day policy meeting, which begins Tuesday. The Fed is expected to tighten monetary policy much faster than thought a month ago to rein in persistent high inflation. Michael Hewson, chief market analyst at CMC Markets UK, comments:
I don’t expect the Fed to have a significant impact on what gold prices are doing right now. Because markets are more concerned about what is happening in Eastern Europe. Markets have already priced in the March hike, so I don’t think there will be any surprises.
Rising US interest rates increase the opportunity cost of holding noninterest-bearing bullion. Benchmark US 10-year Treasury rates dropped to a one-week low, helping gold. While US President Joe Biden was considering options to counter the build-up of Russian troops in Ukraine, the US State Department ordered family members of diplomats to leave Ukraine. Carsten Menke analyst Julius Baer comments:
Assuming that the current wave of risk aversion will eventually recede once the Fed addresses these fears and prevents the economic outlook from deteriorating, we believe the gold and silver markets are not experiencing a temporary but permanent recovery again.
“Gold can’t really compete with them in terms of protection!”
Gold rose 0.83% this week as investors seek protection from concerns over a possible extension of US sanctions or new European Union measures should Russia attack Ukraine. However, gains may have been limited by fears of a tightening of the Federal Reserve, according to market analyst James Hyerczyk.
Prices fell earlier in the week until US President Joe Biden made a potential invasion of Ukraine by Russia a reality. The analyst states that this news triggered an intraday short-term rally strong enough to push gold to its highest level since November 22. On January 19, President Joe Biden claimed that Russia would ‘move’ to Ukraine, citing the existential concerns of the country’s president Vladimir Putin, even admitting to the division within NATO over how to respond to a ‘small attack’.
The US Federal Reserve is expected to announce at its January 25-26 meeting that it will tighten monetary policy much faster than thought a month ago to rein in persistent high inflation, seen by economists surveyed by Reuters as the biggest threat to the US economy next year.
Gold futures for April delivery may have rallied a little higher last week, but a drop below Wednesday’s breakout indicates that the rally may have been driven by short-term closes rather than new buyers. James Hyerczyk comments:
While some bulls try to label gold as a safe-haven, in terms of gold protection, Treasuries can’t really compete with the Japanese Yen and US Dollar. In my view, gold is supported because investors are betting that the US economy may be doing worse than the Fed thought.
The Fed will unveil most of its cards on Wednesday this week. But if his plans are too aggressive, the analyst notes, it could mean that inflation will be a problem for longer than expected, and central bank policymakers will have trouble getting him down to the 2% mandate by the end of the year.
Gold now targets $1,850
CME Group’s preliminary data for gold futures markets noted that after four consecutive days of gains, open interest contracted by about 3.9k contracts on Friday. Along the same lines, volume has now clinched the third consecutive decline with around 25.5k contracts.
According to market analyst Pablo Piovano, Friday’s decline in gold prices was behind the lower open interest and volume, targeting recent highs in the $1,850 area in the near term, leaving the door open for a recovery on the short-term horizon.
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