The rise in the US dollar and fears of aggressive rate hikes by major central banks to tame inflation are weighing on bullion. However, gold managed to bounce back from its lows on Thursday. The precious metal is now poised for its first weekly gain in six weeks. Analysts interpret the market and share their forecasts.
“Gold is under pressure by the fact that inflationary expectations are falling”
Spot gold was up 0.19% at $1,722 at the time of writing. Prices fell to $1,680.25 on Thursday, hitting their lowest level in more than a year. After that, it made a short 1.3% rally. U.S. gold futures rose 0.48% to $1,721.7 per cent.
Gold rallied 0.3% against its rivals as gold prepares for its first weekly gain in six weeks. This move made dollar-priced bullion more expensive for buyers holding other currencies. Edward Meir, analyst at ED&F Man Capital Markets, comments:
Gold is in a downtrend and the rallies that have started are short-lived. That’s because the shiny metal is under pressure by the fact that inflationary expectations are falling.
Edward Meir: This will be very bearish for gold
The eurozone economy is suffering from the impact of Russia’s war in Ukraine. Despite this, the ECB raised interest rates more than expected on Thursday. It also joined its global peers in the fight against rising inflation.
cryptocoin.com As you follow, the US Federal Reserve will hold its policy meeting next week. Markets expect the Fed to raise interest rates by 75 basis points. Higher interest rates increase bond yields. This increases the opportunity cost of holding the unprofitable yellow metal. Edward Meir explains:
We expect to hear how hawkish the Fed will be on interest rates. If they think inflation is still a problem, they will still go for more rate hikes. This will also be very downside for gold.
Daniel Pavilonis: These increase the interest in gold!
Data released on Thursday marked an eight-month high in weekly first-time jobless claims in the US. Also, July showed that factory activity fell. This is the latest indication that the US economy is slowing under the weight of strong interest rates and inflation.
Daniel Pavilonis, senior market strategist at RJO Futures, says geopolitical risks on Ukraine, high energy prices and large amounts of debt have fueled interest in gold.
Gold stuck between different prints, according to Suki Cooper
But overall, the dollar’s recent rally has increased the opportunity cost of holding the non-yielding asset. Added to this were the headwinds from aggressive interest rate hikes that dampened the appeal of the safe haven. Beneath these pressures, the yellow metal has dropped more than $380 since early March. Standard Chartered analyst Suki Cooper explains gold’s tightness as follows:
Gold is stuck between rising inflation, rising recession concerns and a flight to quality on the one hand, and sharp interest rate hikes, a strong dollar and seasonally weak demand on the other.
Chris Gaffney predicts an opportunistic rally under
Chris Gaffney, head of world markets at TIAA Bank, discusses the Fed’s rate hike. According to Gaffney, the current rally will be short-lived as the Fed is expected to be quite aggressive and the dollar can maintain its strength.
Gaffney also says that if the Fed signals that it’s done with real aggressive moves, we could see an “opportunistic rally in gold.” But until then, he adds, the precious metal will remain under pressure.
