Gold fell sharply to close at its lowest in nearly two weeks as investors weighed the latest US inflation data and watched the Fed, which is expected to raise benchmark interest rates this week. So what to expect now?
CMC Markets: Gold’s attractiveness is waning
CMC Markets UK chief market analyst Michael Hewson said on Tuesday that the recent sharp rise in US Treasury yields “has diminished gold’s attractiveness beyond a statement that could signal hard monetary policy.” While Russia’s invasion of Ukraine could hurt global economic growth, the central bank is expected to announce the first increase in federal funds futures since 2018 on Wednesday as policymakers try to tackle US inflation at a 40-year high.
Russia and Ukraine continued negotiations to end their hostilities in Eastern Europe after the fourth round of talks ended without a clear agreement on Monday. Gold has been attracting safe-haven offers since the start of the conflict between Moscow and Kyiv on February 24, but began to decline significantly ahead of Wednesday’s Fed decision.
Can gold drop below $1,900?
Gold prices continued to trade lower on Tuesday after bulk prices showed a sharp rise of 0.8 percent in February but fell short of Wall Street economists’ earnings estimates of 0.9 percent. cryptocoin.com As we have also reported, the Fed is expected to raise interest rates by 25 basis points on Wednesday.
Stephen Innes, managing partner at SPI Asset Management, said gold has taken on some of its “risk-reward” nature as the Fed tries to raise rates to mitigate the effects of inflation. İpek Özkardeşkaya, a senior analyst at Swissquote Bank, wrote that possible increases could trigger sales in US Treasury bonds, increase yields even more, and increase the opportunity cost of having inefficient gold as a response to government debt, and used the following statements:
Repeated failures to find a diplomatic solution to the Ukraine war could overwhelm rising US yields and pave the way for a drop to around $1,900 below.
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