Gold prices declined on April 22 trade as the U.S. dollar and Treasury yields climbed following comments from a Federal Reserve official that a sizable interest rate hike might be incoming.
Gold futures were trading at $1,944 an ounce as of 13:57 UTC (9:57 a.m. Eastern time) on April 22, down 0.4 percent from opening. Prices had earlier fallen to about $1,931 per ounce before recovering.
“We are dealing with the global economy where interest rate hike expectations continue to move up. As a result, yields are moving higher and the dollar is trading stronger, all potential strong challenges to gold at this point,” said Saxo Bank analyst Ole Hansen in a
Reuters report.
“Gold is holding within the established range ... The reason being the market is worried that these very strong expectations for rate hikes in the U.S. may lead to a bigger than expected economic slowdown.”
Federal Reserve Chairman Jerome Powell
said on April 21 that a 50-basis-point hike is “on the table” during the upcoming Fed meeting on May 3–4. Speaking at a meeting of the International Monetary Fund, Powell pointed out that since inflation is currently running at three times the Fed’s target rate of 2 percent, it might be appropriate to move “a little more quickly” on interest rates.
Following Powell’s statements, the 5-year Treasury yield climbed up to 3.05 percent before coming down,
CNBC reported. The U.S. dollar index hit a 25-month high and was trading at about the 101 level as of 14:33 UTC (10:33 a.m. Eastern time). Other currencies like the euro, pound sterling, Australian dollar, Norwegian crown, and Chinese offshore yuan fell against the dollar.
Upward pressure on gold comes primarily from the persisting uncertainty in the Russia–Ukraine conflict that adds to inflationary pressures. To hedge against inflation, investors flock to gold as a relative safe haven for their wealth.
An April 19
report from S&P Global showed that gold fundraisings rose by 296 percent in March 2022 to $1.22 billion. This is the highest monthly total the agency has seen since 2014. The number of fundraisings surged by 61 percent to 122.
“From a technical perspective, spot gold may face little resistance once it goes north of $2,000 ... However, gold’s ability to keep its head above $2,000
may be strained once real yields break into positive territory,” said Han Tan, chief market analyst at Exinity.
The global economy and credit markets are now
faced with downside risks due to the war in Ukraine, inflationary pressures, higher interest rates, and the ongoing COVID-19 pandemic, Bjorn Goosen, a senior analyst at S&P Global Market Intelligence, said in a webinar on April 21.
Such an environment means gold prices are going to be “firm” in the coming few quarters, he added.
“Our price outlook for gold appears healthy for the short to medium term, remaining about the $1,900 an ounce mark on the back of the geopolitical and macroeconomic uncertainties,” Goosen said.
Reuters contributed to this report.
