Gold continued its decline on Friday and was set for its worst week since late November as rising expectations of US interest rate hikes pushed the dollar to multi-month highs and made bullion less attractive to offshore buyers.
“We are approaching a potential bottom as gold price breaks $1,800”
Gold fell below its 100- and 200-day moving averages in the last session after the US Federal Reserve reaffirmed its plans to end its pandemic-era bond purchases and signaled a rate hike in March. Edward Moya, senior market analyst at OANDA brokerage, comments:
The current market environment is very harmful for gold. Investors are completely reevaluating Fed expectations. There is still some selling momentum underneath, but we are now approaching a potential bottom as it has broken $1,800.
Rising interest rates increase the opportunity cost of holding non-yielding bullion. cryptocoin.com As we reported, interest rate hike prospects pushed the dollar towards its biggest weekly gain in seven months, making gold more expensive for holders of other currencies.
However, Saxo Bank analyst Ole Hansen wrote in a note that gold’s credibility as an inflation hedge is likely to reappear with rising stock market volatility as the market adjusts to a rising interest rate environment.
Philip Streible: Markets digest Fed Chairman’s comments on rate hike
The World Gold Council (WGC) predicts that demand for jewellery, small bars and coins will remain strong in 2022, indicating that it could limit bullion’s decline. The WGC also expects central banks to continue buying gold at a slower pace.
Philip Streible, chief market strategist at Blue Line Futures in Chicago, said the drop in gold prices was a continuation of Wednesday’s sell-off as markets digested Fed Chairman Jerome Powell’s comments on rate hikes.
US economic growth accelerated in the fourth quarter, recording its best performance in nearly four decades in 2021. Gold prices will fall in 2022 and 2023 as central banks raise interest rates, raise bond yields and make non-revenue precious metals less attractive, according to a Reuters poll.
The gold price has fallen more than 3% since hitting a 10-week high on Tuesday after safe-haven purchases triggered by Russia-Ukraine tensions. 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 should remain the case unless the economic floor deteriorates sharply.
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