Gold prices held their ground on Monday, with limited gains on expectations of a tightening of monetary policy in the US. Analysts’ market comments and expectations cryptocoin.com compiled for our readers.
“Fed’s falconry could have negative effects for gold”
Xiao Fu, head of commodity markets strategy at Bank of China International, comments on the Fed’s stance and gold’s reaction:
A tightening monetary policy may have negative effects on gold, but gold is holding up very well nonetheless. I think this is mainly because the overall Fed balance sheet is still high.
After policymakers signaled that they would start raising interest rates in March to rein in inflation, the focus is now on the US Federal Reserve’s January 25-26 meeting. Commerzbank analysts comment in a note:
Market participants will avoid buying gold before the US Fed’s first rate hike. They may be hoping that the Fed’s meeting next week will give them more and/or clearer signals that the Fed will start the rate hike cycle in March.
Gold is considered an inflationary hedge, but the precious metal is highly susceptible to high US interest rates, which increases the opportunity cost of holding non-yielding bullion. The dollar fell, making bullion cheaper for offshore buyers, while US 10-year Treasury yields hit a two-year high last week on expectations of rate hikes. Quantitative Commodity Research Peter Fertig’s assessment is as follows:
The euro is slightly stronger against the US dollar. So this is a supportive situation for gold and other precious metals. On the other hand, interest rates rose slightly, which dampens the impact of the weak US dollar.
Meanwhile, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday it had cut its net long COMEX gold position by 7,083 contracts to 87,859 for the week of January 11, reflecting investor sentiment below speculators.
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