Gold started the new year on a bad footing, suffering heavy losses last Monday. Buyers, however, managed to hold the key $1800 level and gold climbed all the way to $1830 mid-week, but it didn't last long and soon faced renewed bearish pressure. Gold prices fell sharply on Thursday as U.S. Treasury yields soared. Despite the disappointing non-farm payrolls data released on Friday (January 7), gold has yet to achieve a convincing rebound. The last week closed at the $1795 level, down 1.82% for the week, thus ending the previous three-week winning streak.
Gold is considered a hedge against rising inflation, but it is highly sensitive to rising U.S. interest rates, which would increase the opportunity cost of holding gold as a non-yielding asset. Fed funds futures are pricing in an almost 80% chance of a Fed rate hike in March and a nearly 75% chance of at least two hikes in the first half of the year.
Bart Melek, head of global strategy at TD Securities, said: "Non-farm numbers were very disappointing. But despite weak employment, the relative consensus is that inflation pressures remain. Gold still rebounded slightly in the first quarter, gaining another $40-$50, but after that Gold could slide to lower levels," Melek said. "There's no guarantee the Fed will be restrictive. The market thinks the Fed will act forcefully, but I'm not so sure they can."
Phillip Streible, chief market strategist at Blue Line Futures, said this week could mark the peak of the Fed's hawkishness given the changing macro data and omicron situation. “Gold will recover from this sell-off. We’re taking advantage of this correction to buy gold again. Right now, it’s trading in the lower part of its range and it’s worth stepping in at these price levels.” Chief Market Strategist at Blue Line Futures Teacher Phillip Streible said.
Gainesville Coins precious metals expert Everett Millman noted that long-term drivers remain supportive of higher gold prices. "Even if interest rates are rising, high inflation still means negative real rates. That's good for gold," Millman said. "Also, gold has done very well at the start of rate hikes over the past two rate hike cycles. We could see a repeat of that when rate hikes start later this year. It should push gold closer to $1,900.”
In general, the short-term trend of gold prices is still relatively weak. If the 1800 mark cannot be recovered, the price of gold may continue to run weakly. This week's CPI data is still very important, and the hawkish trend of the Federal Reserve is expected to become the most important factor affecting the price of gold.
Risk Warning: The above content is for reference only, and does not represent JRFX’s position. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.
JRFX is an online CFD broker providing more than 50 products for Forex, metals and commodities. Open a trading account within a minute. Deposit 100USD and download our MT4 trading platform now!
MetaTrader 4 is a Forex and CFD trading platform used for trading and analysing the financial markets. MetaTrader 4 offers traders access to advanced trading operations in a fast, secure and reliable environment.DOWNLOAD
Access the globe's financial markets from your fingertips: explore our new JRFXOne mobile app and choose from over 1,500 CFD markets including FX, indices, commodities and stocks from around the world.DOWNLOAD