Gold glints with opportunity as Federal Reserve mulls interest rate hike to combat rising inflation
Impending increases in US interest rates could power gold’s performance over the coming weeks according to market analysts, with prices currently treading water at just over $1,820 per ounce.
Experts remain split on the gold’s recent performance, with Commerzbank analysts Daniel Briesemann and Carsten Fritsch suggesting retail sales figures and industrial production “fell short of expectations in December.”
The bank believes investors are waiting to see if the Federal Reserve (‘the Fed’) will raise interest rates above 0.25 per cent at the next policy meeting on January 26, following inflation rising to seven per cent Stateside, with consumer price growth recording its largest jump since June 1982.
In its report, Commerzbank argued that weaker US economic data had lent no buoyancy to gold over recent days, with the price instead coming under pressure from stronger-than-expected appreciation in the US dollar and rising bond yields.
The bank also noted that provisional consumer sentiment index published by the University of Michigan dropped more sharply than expected in January.
This could reflect the concerns about the rapid spread of the Omicron variant and the high inflation.
In the investor’s report, the Commerzbank said: “In our opinion, market participants are likely to refrain from buying gold ahead of the Fed’s first-rate hike. They may be hoping that the Fed’s meeting next week will give them clearer signals that the Fed will be commencing its rate hike cycle in March.”
Gold prices could also be boosted by a greater tightening of monetary policy as the US emerges from the pandemic.
Rupert Rowling, market analyst, Kinesis Management expects the ‘inflationary environment’ across developed economies to be “positive for gold”.
He described the $1,8000 per ounce price to “psychologically important” as investors weigh up moves in the market.
Forecasting the future, the analyst expects prices to remain stable for the time being.
He said: “With no clear moves yet on currency markets and with reduced volumes for anything US-related today as a result of the public holiday, gold is likely to spend another day shuffling around the $1,820 level that has been its home for the last few days.”
At the more bullish end of the spectrum, Saxo Bank’s head of commodity strategy Ole Hansen anticipates a more rapid increase in prices.
He said: “Gold remains resilient despite Friday’s renewed surge in bond yields as the market continues to price in the prospect of rising US interest rates, potentially at a more aggressive pace than previously expected. Support continues to build in the $1800-area while a break above $1830 could see it target $1850 ahead of the November peak at $1877.”