Gold prices hovered around $1,930 on Wednesday as concerns over the Ukraine crisis bolster demand for the safe-haven metal. However, calls for sharper rate hikes to combat inflation from US Federal Reserve officials continue to weigh on market sentiment.
Yellow metal caught between high interest rates and geopolitical risk
Spot gold was trading at $1,930 at the time of writing, up 0.48% on a daily basis. U.S. gold futures rose 0.4% to $1,929. Michael McCarthy, chief strategy officer for Tiger Brokers, Australia, comments:
The potential for higher interest rates globally is putting pressure on gold prices. On the other hand, the desire for a safe haven in the face of the geopolitical conflict in Ukraine is supportive for the yellow metal.
cryptocoin.com Louis Fed President James Bullard urged the central bank to raise the benchmark overnight rate to 3% this year and act aggressively to keep inflation in check. The market is pricing in a 72.2% probability that the Fed will raise federal funds rates by 50 basis points in May. The odds for a larger increase on Monday are just over 50%.
Wang Tao: Gold prices could be pulled into this range
Meanwhile, benchmark US 10-year Treasury rates have jumped to fresh highs since May 2019. Gold is highly susceptible to high US interest rates and yields, which increase the opportunity cost of holding a no-return bullion.
Michael McCarthy states that optimism about the Ukraine decision is starting to fade, leading some traders to think there is potential for an upside breakout.
Among these developments, the West plans to announce more sanctions against the Kremlin amid a worsening humanitarian crisis despite talks between Ukraine and Russia. Spot gold could fall to the $1,891-1,903 range as the downtrend continues from the March 8 high of $2,069.89, according to Reuters technical analyst Wang Tao.
Bob Haberkorn: Invasion of Ukraine protects the ground for gold
“The Fed’s readiness for half-point gains against a quarter-point advance has been pretty hawkish and has pushed gold down,” said Bob Haberkorn, senior market strategist at RJO Futures. The strategist adds the following statements:
Such a comment would normally drop gold significantly, such as a $50 drop. However, the fact that the Russia-Ukraine situation is at the forefront protects the ground for gold.
“This indicates that asset managers are returning to gold”
Analysts say that despite the Fed’s hawkish stance, the pressure on gold has relatively eased as investors’ focus is on the Ukraine conflict and any major developments are likely to trigger sharp price swings.
Saxo Bank analyst Ole Hansen notes that rising gold exchange-traded fund assets show that despite daily price fluctuations, asset managers are returning to gold as a measure to diversify and counter inflation and economic downturn.
Pablo Piovano: Gold remains supported around $1900
Open interest on the gold futures markets restarted the downtrend and nearly 5,000 contracts shrank on Tuesday, according to advanced figures from CME Group. On the other hand, volume rose by around 4.5k contracts this time in the third session in a row.
According to the analyst, Tuesday’s drop in gold prices was behind the lower open interest rate, removing the power of a potential deeper pullback and allowing for some consolidation moves in the very near term. In contrast, the analyst states that bullion prices seem to be supported around $1,900 so far.
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