Gold Set to Fall For 4th Week as Dollar Spikes

Marked ingots of 99.99 percent pure gold are placed in a cart at the Krastsvetmet non-ferrous metals plant in the Siberian city of Krasnoyarsk, Russia, on March 10, 2022. Alexander Manzyuk/Reuters

Gold prices were trading lower on Friday, all set to register the fourth consecutive week of decline amidst a rise in the U.S. dollar and the Federal Reserve raising key interest rates.

Gold futures were trading in the red at $1,813 per ounce as of May 13, 14:11 UTC, at which time the U.S. dollar index futures were trading up at around 104. After Russia invaded Ukraine on Feb. 24, gold saw a rapid spike, moving up from $1,911 per ounce to peak at around $2,078 per ounce on March 8, an increase of 8.74 percent.

However, it has since slipped from these highs, declining for the past three weeks. For this week, gold has fallen by 3.71 percent after opening at $1,883 per ounce. In contrast, the U.S. dollar index futures have been rallying since Feb. 24, moving up from 96 to the current 104, an increase of 8.33 percent.

According to Fawad Razaqzada, market analyst at City Index, gold prices are feeling downward pressure due to the hawkish stance of the Fed and safe-haven flows into the dollar.

“Gold has not found any kind of support in times like now when you’d expect haven demand to be strong ... We’ve seen lots of support levels breakdown, which is discouraging for short-term traders,” Razaqzad said to CNBC.

The U.S. dollar index was headed for a sixth consecutive weekly gain, hovering close to its two-decade high as the market remains concerned about the Fed’s move to rein in inflation, which they expect would end up negatively affecting economic growth worldwide.

Last week, the agency raised its benchmark interest rate by 50 basis points. “There is a broad sense on the committee that additional 50-basis-point increases should be on the table at the next couple of meetings,” Fed Chairman Jerome Powell had said at a post-meeting press conference.

The agency is also looking to reduce its almost $9 trillion balance sheet by selling $47.5 billion worth of assets every month, which will increase to $95 billion per month after three months.

Tightening monetary conditions around the world is “working against” gold, which does not produce any inherent yield if one were to just hold the asset, according to a May 13 online post by IG Bank. Moreover, as gold is also “widely priced in the greenback” worldwide, it becomes “quite sensitive” to an increasingly “hawkish” Federal Reserve.

Bullion is sensitive to rising U.S. short-term interest rates and bond yields as this raises the opportunity cost of holding the metal.

“Nominal yields will also climb, creating double yield trouble for gold investors as the Fed will remain hawkish until inflation indicators fall,” said Stephen Innes, managing partner at SPI Asset Management, according to Reuters.

With its past three weeks of declines, gold has wiped out any price boost it had gained following the Russian invasion of Ukraine.