cryptocoin.com As we reported, Fed minutes released Wednesday showed officials discussing shrinking the central bank’s total assets and raising interest rates earlier than expected to fight inflation. As a result, gold saw its biggest weekly drop since the end of November. However, the yellow metal calmed down on Friday as traders prepared for earlier-than-expected rate hikes by the US Federal Reserve and were under pressure by stronger bond yields.
“US NFP report will be decisive for gold price”
Markets are increasingly pricing in an aggressive Fed, according to IG Markets analyst Kyle Rodda. The analyst states that the possibility of the Fed trying to control an inflation epidemic clearly raises interest rates.
According to the CME FedWatch Tool, traders expect a more than 70% chance of a rate hike by at least 25 basis points at the Fed’s March meeting. Benchmark US 10-year Treasury yields were fixed at near their strongest levels since March 2021. Higher interest rates increase the opportunity cost of holding gold.
Bullion is considered an inflationary hedge, but the precious metal is highly susceptible to rising US interest rates, which increases the opportunity cost of holding non-yielding bullion. Meanwhile, investor focus will be on the US nonfarm payroll report, due today. Jeffrey Halley, senior market analyst at OANDA, comments on the impact of the data:
A figure above 550/600k will strengthen the Fed’s statement of faster tightening and put pressure on gold. A figure below 250 thousand will alleviate these concerns and give gold some support.
“Primary focus, number of rate hikes”
The primary focus is on the number of rate hikes and how aggressive the Fed will be in the balance sheet flow that puts gold in a vulnerable position, according to Ed Moya, senior market analyst at OANDA brokerage firm. Ed Moya also states that if the movement in Treasury rates is much higher in the short term, it will be very destructive for gold transactions.
TD Securities said in a note that gold and silver prices are under pressure as markets try to squeeze in a fourth rate hike for 2022, adding that the increase in the money supply will further reduce appetite for all collectibles, including silver coins.
According to the analyst, the next target for gold is $1,753.
Considering CME Group’s preliminary figures for gold futures markets, open interest rose by nearly 10.6k contracts for the second session on Thursday, this time around. In the same direction, volume also extended the uptrend, rising by around 80,000 contracts to nearly 282,000 contracts, the highest level since November 26.
Yellow metal prices accelerated their losses on Thursday. Market analyst Pablo Piovano states that this development comes amid increased open interest and volume, which will support the continuation of the bearish trend in gold, at least in the very near term. However, the next target for gold lies at the December low at $1,753 (Dec 15).
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