Gold slid to a one-week low on Wednesday after Federal Reserve Governor Jerome Powell said interest rates might need to be higher than expected to curb inflationary pressures. Analysts interpret the markets and share their forecasts in the light of the latest developments.
“There is a break under $1,800 on the cards for gold”
Jerome Powell said the Fed will likely need to raise rates more than expected in response to recent strong data, and is prepared to take bigger steps if the ‘total’ of information shows that tougher measures are needed to control inflation. Gold fell as much as 1.9%, or more than $30, to $1,812.55 after Powell’s remarks on Tuesday. Matt Simpson, a senior market analyst at City, comments:
After Powell’s hawk words, no one wants to buy gold today… Gold sales are also very low, prices are falling a little more, but they are incredulous. Gold looks almost startled today. There is a break below $1,800 on the cards for gold.
“Gold product sales fell to bottom levels”
cryptocoin.com As you follow, the Fed slowed to a rate hike of 25 basis points at its last meeting, after larger hikes last year to combat decades of high inflation. However, a series of data in recent weeks has raised concerns that the US central bank will continue to tighten monetary policy. Markets are currently pricing in a 50 basis point increase at the Fed’s policy meeting March 21-22.
The dollar index hit a three-month high, making the bullion less accessible to buyers holding other currencies. Meanwhile, Australia’s Perth Mint reported that its gold product sales fell to the lowest level in more than two years in February.
Powell spoke more aggressively than the market anticipated
Tai Wong, a senior trader at New York’s Heraeus Precious Metals, comments on Powell’s statement:
This direct reference to tightening faster is more of a push than a nudge, even if mitigated by “if necessary.” Hence, it is putting pressure on the precious metals complex as the dollar rises. Gold had already pulled back after Friday’s strong close. However, Powell took a more aggressive stance than the market had anticipated.
“The price of gold lacks an immediate impulse!”
Meanwhile, the February employment report in the US will be released on Friday. Han Tan, chief market analyst at Exinity, says that if Friday’s jobs data show significant resistance in the US labor market, it will pave the way for US rates to rise further and gold could loosen its month-to-date gains so far.
According to Adrian Ash, BullionVault’s director of research, Powell’s statement proves that the Fed’s kryptonite can still drain the strength of gold. In this context, the analyst makes the following statement:
While inflation and the shock of the war in Europe have now worn off as a reason to buy gold, the precious metal currently lacks an immediate impetus to turn investor sentiment positive in the face of impending Fed hikes.
“There is not much support for the gold price at the moment”
Jeff Wright, chief investment officer at Wolfpack Capital, says Powell’s comment is not surprising to those who follow the Fed and its impact on interest rates, gold and the US market. In this regard, the analyst underlines the following:
The gold price is declining due to the possibility of increasing the pace of future rate hikes more sharply and for a longer period of time. The probability of a 50 basis point increase for March is now much higher than before. According to Powell’s lively testimony, it is very possible for gold to drop to $1,800 very quickly. There is not much support for gold at the moment. It’s literally a ‘wait and see now’ session.
“Precious metal prices fell after a reassessment of global demand, following a stronger dollar, as well as a lower-than-expected China 2023 GDP target,” said Michael Hewson, chief market analyst at CMC Markets UK.
“The price of gold may rise in flight to quality in this case”
Powell is also scheduled to speak before a House panel on Wednesday at 6 PM. Peter Grant, senior metals analyst at Zaner Metals LLC and Tornado Precious Metals Solutions, comments after Powell’s statement:
The gold market focuses on the tides of monetary policy expectations and the resulting movements in interest rates and the dollar. However, if it turns out that rate hikes alone won’t be able to contain inflation, gold could skyrocket to quality in anticipation of persistent inflation and rising recession risks.
“Gold looks pretty solid right now!”
Meanwhile, Adrian Ash of BullionVault says gold managed to break an all-time record at $1,800, ignoring the high interest rate hikes last year. From this point of view, the analyst explains his views as follows:
Gold looks pretty solid at the moment to prevent its pullback, thanks to strong bids from Asia’s major jewelery markets and emerging market central banks.
