Gold prices on Wednesday tried to recover from Tuesday’s slump amid anticipation of aggressive US rate hikes. Spot gold rose to $1,818.36 at press time after falling to a one-week low of $1,805 on Tuesday. U.S. gold futures were trading at $1,818.9 with a similar increase. Analysts’ comments and forecasts on gold prices, evaluating the reaction of the markets and the actions of the Fed. cryptocoin.com compiled for our readers.
Ilya Spivak: Gold price action seems firmly tied to Fed narrative
The US Federal Reserve’s rate hike expectations pushed the benchmark Treasury rates even higher and lowered the attractiveness of non-yielding bullion, which is seen as a measure against inflation. Benchmark US Treasury yields jumped to two-year highs on Tuesday as traders brace for the Federal Reserve to be more aggressive in tackling unrelenting inflation.
Meanwhile, oil prices soared to a seven-year high as, adding to inflationary pressures, worrying geopolitical issues in Russia and the United Arab Emirates, and a cut in a pipeline from Iraq to Turkey raised supply concerns. The Office for National Statistics announced on Wednesday that UK consumer price inflation rose to 5.4% in December from 5.1% in November and more than expected. DailyFX currency strategist Ilya Spivak comments:
It’s very tempting to look at the geopolitical background as something people think about when they consider gold. Although gold doesn’t seem to be behaving this way at the moment, it seems to be firmly rooted in the Fed narrative.
Inflation keeps gold here, according to Bob Haberkorn
Bob Haberkorn, senior market strategist at RJO Futures, has the following predictions for the price of gold:
If the Fed raises rates next week, gold could see a sell-off below $1,800. However, if he raises rates before March, there will be a temporary drop as the market will understand that the Fed is in a difficult position. After the first interest rate hike, gold prices can be traded in the range of $1,780-1,830.
Benchmark 10-year US Treasury yields hit a two-year high, while the dollar index (DXY) hit a one-week high, making gold expensive for offshore buyers. While gold is considered an inflationary hedge, it is highly susceptible to rising US interest rates, which increases the opportunity cost of holding non-yielding bullion. Elsewhere, US stock indexes fell on Tuesday, capping the bullion’s losses. Bob Haberkorn comments:
We are on the path to higher interest rates throughout the year that will limit the rise of gold, but the story of inflation keeps gold going here.
Ed Moya: Gold may remain bullish in the medium term
After officials signaled that they will start raising interest rates in March to curb inflation, the focus of global investors remains steady at the Fed’s January 25-26 meeting. Ed Moya, a senior market analyst at OANDA brokerage firm, highlights the following in a note:
Gold is entering a volatile period, but it still remains bullish in the medium term if prices can stay around $1,800. Gold will continue to be an inflation hedge for most of Latin America and the developing world.
“This opens the door to the continuation of the downtrend”
The latest data for CME Group’s gold futures markets indicated that the short position rose for the second consecutive session on Tuesday, this time by around 9.5K contracts. Along the same lines, volume reversed the previous daily decline, rising by nearly 278.4k to over 485k contracts, the largest volume since November 22, 2021.
Market analyst Pablo Piovano notes that gold continues to correct downward after seeing highs near $1,830 last week, and Tuesday’s drop is due to lower open interest and volume. According to the analyst, this opens the door to a continuation of the downtrend in the very near term with the close target of $1,800.
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