Gold prices fell below $1,930 this morning amid positive signs from talks by Russian and Ukrainian representatives, boosting hopes for peace. cryptocoin.com As we have also reported, another important focus this week will be the Federal Reserve’s Open Market Committee (FOMC) meeting of the US Federal Reserve.
TDS: Inflation impact could leave gold vulnerable to Fed
Gold is challenging the bullish trend that has supported prices so far. Economists at TD Securities believe the impact of inflation could leave the yellow metal vulnerable to a more hawkish Federal Reserve. Economists make the following assessment:
Respondents can expect global central banks to step up their gold purchases following aggressive Western sanctions against Russia. But official data points to lackluster streams in recent months. The market began to discount a future where the growth shock could fade faster than the inflation shock, leaving gold prices vulnerable to a more hawkish Fed profile that could open the door to deeper consolidation.
“If the Fed is not aggressive, there will be no additional pressure on gold prices”
Economists at Commerzbank, however, do not expect rate hikes to weaken the yellow metal. “There are hopes that the war in Ukraine can end,” economists say, adding that this development increases the risk appetite among market participants and accordingly reduces the demand for gold as a safe haven. Economists comment:
Bond yields are also rising significantly in response to easing existing tensions, which has made gold less attractive as a non-interest bearing investment.
Economists at Commerzbank are projecting a total of six rate hikes of 25 basis points each by the end of the year. “Fed Fund Futures is now pricing in almost seven rate hikes this year,” economists said, assessing the impact on the precious metal as follows:
This should no longer put additional pressure on gold prices. That could change if the Fed raises rates more aggressively at some point. It will therefore be important to see how inflation develops over the next few months.
Dominic Schnider: Market is less concerned about the situation in Ukraine
Gold prices fell more than 1% on Tuesday to hit the lowest level in nearly two weeks, as US Treasury bond yields rose ahead of the expected rate hike, while hopes for progress in Russia-Ukraine talks further dampened the precious metal’s safe-haven appeal. Dominic Schnider, head of commodities and APAC forex at UBS Wealth Management in Hong Kong, said:
The market may be less worried about the very dire situation we have in Ukraine where safe-haven assets (like gold) are backed.
“The increase in interest rates will not help the purpose of gold”
Russian and Ukrainian delegations held a fourth round of talks on Monday. However, no new progress was announced. Talks will continue on Tuesday. In a note, OANDA senior analyst Jeffrey Halley highlights:
Adding to gold’s woes, the market seems to be waking up late to the effects of a hawkish FOMC meeting this week, and a rise in US interest rates won’t help gold’s cause.
U.S. Treasury rates jumped to the highest level in more than two and a half years ahead of the Fed’s much-anticipated first rate hike in three years on Wednesday. Gold prices are highly sensitive to rising US interest rates, which increases the opportunity cost of holding non-yielding bullion.
Pablo Piovano: Gold prices could retest $1,900
Shorts shrank by about 8.3k contracts on Monday, partially reversing the previous day’s structure, given CME Group’s latest data for gold futures markets. In the same row, volume fell for another session, this time with around 170.6k contracts.
According to market analyst Pablo Piovano, gold prices continued their downtrend at the beginning of the week with decreasing open interest and volume. Against this, the analyst states that a deeper pullback is not in sight, but a reasonable pullback to the monthly low near $1,900 (March 1) is possible.
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