Gold prices fell to a three-week low on Friday as the dollar rose after the US Federal Reserve appeared ready to raise interest rates in March, and bullion had its worst week since late November. Spot gold slid 0.76% to $1,783 at press time, while US gold futures were down 0.56% to $1,783.1 at $1,783.1.
Ross Norman: Golden bulls and bears alike will be frustrated
Gold prices hit a two-month high at the beginning of the week as escalating tensions over Ukraine and rising market volatility boosted interest in safe-haven gold. cryptocoin.com As we reported, the precious metal has fallen more than 3% so far in the last session, falling below the 100-day and 200-day moving averages, after the Fed reaffirmed its plans to end its pandemic-era bond purchases on Wednesday and signaled a rate hike in March.
“Both bulls and bears will be equally frustrated by the recent gold price action,” comments Ross Norman, an independent analyst. Adding that the strength of the dollar and rising interest rates suppressed gold, the analyst makes the following assessment:
The market seems to be looking at the $1,800 level which acts like a giant magnet to the price. And at this point we will continue to navigate.
Why do gold prices continue to decline?
Rising interest rates increase the opportunity cost of holding non-yielding bullion priced in dollars. In a note, Commerzbank underlines:
As can be seen from the Fed Funds Futures, another rate hike has been priced in since the Fed meeting this year. This was clearly too much for gold and caused the price to drop.
The World Gold Council (WGC) expects demand for jewellery, small bars and coins to remain strong in 2022, with central banks “continuing to buy gold but slower than 2021”.
Philip Streible, chief market strategist at Blue Line Futures in Chicago, said the drop in gold prices is a continuation of Wednesday’s sell-off as markets digest Fed Chairman Jerome Powell’s comments on rate hikes.
Carsten Menke: No broad-based movement to gold from safe harbor seekers
Meanwhile, US economic growth accelerated in the fourth quarter, recording its best performance in nearly four decades in 2021. The dollar index (DXY) rose to its highest levels since July 2020, further undermining the attractiveness of safe-haven gold for overseas buyers.
Gold prices will fall in 2022 and 2023 as central banks raise interest rates, raise bond yields and make non-income-yielding nuggets less attractive, according to a Reuters poll. Julius Baer analyst Carsten Menke comments in a note:
Any recovery not supported by safe-haven seekers will sooner or later encounter resistance as long as the economy is in recovery mode.
Carsten Menke adds that he has not seen broad-based movement in gold from safe-haven seekers, but rather some selective buying, which ensures that this remains the case as long as the economic ground does not deteriorate sharply.
“Current move seems in favor of a deeper bearish in the very near-term”
Open interest in gold futures markets fell by about 10.4k contracts this time for the second session on Thursday, according to preliminary readings by CMR Group. On the same line, volume remained volatile and around 18.3k contracts fell.
Gold prices continued their downward trend and closed below the $1,800 level on Thursday. The move was amid declining open interest and volume, suggesting that a deeper decline appears to be in favor in the very near term, according to market analyst Pablo Piovano. Meanwhile, the analyst states that the yellow metal looks well supported around $1,800.
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