Cumhuriyet1 hour agoBusiness1 min readTürkiye

Weekly decline in gold prices: Fed expectations and the impact of the dollar

While the spot gold ounce price is preparing to close the week with a decline, the markets focused on the Fed's interest rate policy.

Quick Look

Spot gold ounce price lost approximately 2 percent on a weekly basis and fell to the level of 4,288.36 dollars.
Statements by Fed officials that interest rates may continue to increase to combat inflation and the strengthening dollar increase the pressure on precious metals.

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Why It Matters

High interest rates in the USA and inflation-fighting messages from Fed officials affect the markets.

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While the ounce price of spot gold increased by 0.2 percent to $4,288.36, it decreased by approximately 2 percent throughout the week. US gold futures rose 0.6 percent to $4,323.10.

THE BIGGEST OBSTACLE TO GOLD IS THE DOLLAR

As the dollar prepares to rise on a weekly basis, this has made metals priced in dollars more expensive for investors using other currencies. US Treasury bond yields also continued to rise.

"The focus will definitely continue to be on interest rates. When we see markets start to price in a more hawkish Fed, that strengthens the dollar and is negative for gold," said OANDA Senior Market Analyst Kelvin Wong.

INFLATION MESSAGE FROM FED OFFICIALS

Expectations that interest rates will remain high in the US for a longer time were strengthened when two Fed officials said that additional interest rate increases may be necessary to control high inflation, after the policy rate was increased by 25 basis points last week.

Philadelphia Fed President Anna Paulson said, "Returning inflation to 2 percent is a top priority, and I will support the policy path that will enable us to achieve this goal. I will also carefully evaluate the risks to the labor market in this process."

New York Fed President John Williams also pointed out that tighter monetary policy is coming.

Although gold has traditionally been seen as a hedge against inflation, high interest rates can limit demand for gold by increasing the attractiveness of yield-generating assets.

GEOPOLITICAL TENSIONS MAY SUPPORT GOLD

J. Rotbart & Co. "I remain optimistic about gold for the remainder of the year. Ongoing geopolitical tensions and rising public debt are creating continued demand for safe-haven assets," said founder Joshua Rotbart.

LOSSES EXPECTED IN OTHER PRECIOUS METALS AS WELL

While spot silver decreased by 0.1 percent to $63.81, platinum increased by 0.5 percent to $1,756.90. Palladium, on the other hand, decreased by 1.3 percent to $1,257.56.

All three metals are preparing to end the week with losses.

Open Questions

Will the Fed increase interest rates at the next meeting?