Gold prices were flat on Friday after sharp selling in the previous session as tarders digested rate hike announcements from global central banks. But the shiny metal is poised for its first weekly drop in seven years amid the strong dollar.
“The recent rise in gold may trigger some profit taking in the short term”
Spot gold saw a 2% drop in sales triggered by a stronger dollar and profit taking on Thursday. After that, it was down 0.1% at $1,910.33 at press time. U.S. gold futures slid 0.25% to $1,925.8. Yeap Jun Rong, a market analyst at IG, comments:
With gold prices showing a spectacular performance of more than 20% in the last three months, some positions may already be in place for softer rate hike bets. It may also have found much-needed validation from the last FOMC meeting. Therefore, it may trigger some profit taking in the near term. For gold prices, however, a greater belief from the point of view of sellers could be a break below the $1,895 level, which appears to have bottomed buyers stepping up just before the meeting this week.
“Gold price can move in this range”
cryptocoin.comAs you follow, gold has gained about $300 since November on expectations that the US central bank will raise interest rates more gently. Because a lower interest rate environment reduces the opportunity cost of holding non-yielding bullion. After the Fed’s 25 basis points hike, both the ECB and BoE both raised rates by 50 basis points on Thursday, as expected.
Global central banks are now together laying the groundwork for a pause that will come to the fore later this year, though not yet promised. Marex metals analyst Edward Meir says gold could range between $1,870 and $1,960 in the next two weeks.
The reason for the decline in the gold price
Meanwhile, the US dollar index rose and kept gold prices under control. High Ridge Futures metals trading director David Meger said that although fundamental support for the gold market remains strong, the slight decline in the market was due to some profit taking ahead of the monthly US jobs data to be released on Friday.
Precious metal prices traded higher overnight and early Thursday. But gold gave up on those gains as buyers and sellers ‘jockey’ for positions. Meanwhile, Adam Koos, head of Libertas Wealth Management, says it’s not like that at all.
“Powell left the door open to a Fed pivot”
The data showed that the number of Americans filing new applications for unemployment benefits fell to a nine-month low last week. Because the labor market remains resilient despite high borrowing costs. The focus now shifts to the US nonfarm payrolls report for January, due Friday. Meanwhile, Jerome Powell has warned of further monetary policy tightening as inflation remains too high. He also noted that progress on reducing inflation is in the early stages. In a note, Kitco Metals senior analyst Jim Wyckoff highlights:
Powell wasn’t as hawkish as he was at recent FOMC press conferences. It also left the door open to a Fed ‘pivot’ sooner or later.
“Gold was certain to encounter profit-taking at some point”
On Wednesday, the Federal Reserve approved a quarter-point increase. The Fed also signaled that only “a few hikes” were more likely before the central bank took a breather in the fight against inflation. At the press conference held after the announcement, Fed Chairman Jerome Powell made statements that seemed more dovish than many market participants expected. Still, he noted that the Fed should “keep rates higher for longer” while waiting to see how quickly inflation falls. Adrian Ash, director of research at BullionVault, comments:
What Powell said and what the markets heard looked very different overnight. Holding it higher for longer puts pressure on non-yielding gold, all things being equal. It was the market’s abrupt pullback at the afternoon London bullion benchmark auction that also put gold prices under pressure. This shows that the New Year increase in gold prices is due to Comex and Shanghai speculations rather than physical demand.
The analyst states that after its recent gains, it is certain that gold will face profit at some point. According to Ash, with the European Central Bank and the Bank of England also raising interest rates on Thursday, today looks as good as any day for the market to find the remaining bids sitting a solid leg higher.
“In a possible scenario, volatility in gold, silver and base metals will increase”
Looking ahead, Chintan Karnani, director of research at Insignia Consultants, says the Fed and every central bank will “study inflation and growth every month through a microscopic lens.” In this context, the analyst makes the following statement:
A potential reversal trend towards higher inflation will cause central banks to choose inflation over growth. Rising interest rate trends may resurface with a pause in such a scenario. When traders realize that a rise in interest rates may follow if needed, there will be a sell-off in precious metals and base metals along with an increase in bond yields. As a result of this possible scenario, volatility in gold, silver and base metals will increase.
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