Gold prices were mostly calm on Thursday. But the yellow metal faced its worst quarter since early 2021. Because a remarkable show from the dollar kept investors away. Bullion has also been overshadowed by top central banks, which have adopted aggressive tactics to combat stubborn inflation. Analysts interpret the market and share their forecasts.
“Rising interest rates and the US dollar play a role in the low performance of gold”
Gold is on its way down for the third month in a row. Gold prices fell about 6.4% this quarter. City Index senior market analyst Matt Simpson says rising interest rates and the US dollar played a role in gold’s underperformance. However, he notes that gold priced in other currencies did not perform too badly.
The US dollar is hovering near its highs over the past two decades. It records the best quarter in more than five years, making dollar-priced gold more expensive for buyers of other currencies.
Fighting inflation is headwind for gold prices
The heads of the world’s largest central banks made statements on Wednesday. They noted that curbing high inflation worldwide would be painful and could even undermine growth. However, they said that rapid intervention is needed to prevent the rapid price increase from settling in.
cryptocoin.com As you follow, central banks are making interest rate increases to fight inflation. This leads to higher bond yields. Naturally, the opportunity cost of holding non-interest-bearing bullion rises.
In the first quarter, the Ukraine-Russia conflict increased the demand for safe-haven and gold prices rose. However, bullion’s performance in the second quarter wiped out gains made earlier in the year. Currently, gold prices are back to levels just above $1,800, where they started in 2022.
“$1,780-1,790 is a critical support level for gold prices”
On the other hand, DailyFX foreign exchange strategist Ilya Spivak says bias will gradually decrease as interest rate increases continue to come in and lower inflation expectations. In this context, he adds that $1,780-1,790 is a critical support level.
Meanwhile, there is a risk that interest rate hikes will slow down the economy too much. However, investors are also weighing comments from Fed chair Jerome Powell, who says the bigger risk is persistent inflation.
“The gold market continues to be in a push-pull state”
Gold is considered a hedge against inflation. Therefore, it is often beneficial during economic uncertainties. However, rising interest rates increase the opportunity cost of holding the asset as it does not generate interest. David Meger, director of metal trading at High Ridge Futures, comments:
The slightly weaker-than-expected GDP numbers continue to spread concerns about the potential move towards a recessionary state. As a result, we are likely to see a move towards safe-haven assets. However, the Fed is strongly committed to fighting inflation. That’s why the gold market continues to be in a push-pull state.
