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Gold is set for weekly drop on hawkish Fed comments

Agnes Lovasz Agnes Lovasz 18/11/2022
Gold is set for weekly drop on hawkish Fed comments Gold is set for weekly drop on hawkish Fed comments
Gold is set for weekly drop on hawkish Fed comments Agnes Lovasz

Fears of an escalation in the Ukraine war pushed gold to a three-month high earlier this week

 

Gold prices were headed for the first weekly decline in three weeks after several US Federal Reserve policymakers signalled that they were unwavering in their fight against inflation and any talk of a pause in rate hikes was premature.

Spot gold rose 0.1% to USD 1,762.10 by 9.15 am GMT on Friday, 18 November, down about 0.5% on the week. Gold futures were also 0.1% higher than the previous days close, at USD 1,765.45 on Friday morning.

In the most recent comments by US rate setters, St. Louis Federal Reserve President James Bullard said that Fed interest-rate increases have further to go to curb the pace of price increases.

The US policy rate was not yet "sufficiently restrictive," Bullard, who is a voting member of the rate-setting Federal Open Market Committee, said in a 17 November speech.

"Thus far, the change in the monetary policy stance appears to have had only limited effects on observed inflation," Bullard said. He added that US  rates may need to go to between 5% and 7% by the time the Fed ends its tightening cycle, which is higher than what most analysts currently predict.

A US retail sales report on 16 November signalled steady demand by US consumers, fanning expectations that US rates need to be much higher to curb inflation.

 

US retail sales rose 1.3% in October from September, at their steepest rate in eight months, after stagnating in the previous month, the Commerce Department said. The reading topped economists forecasts for a 1% increase. Excluding volatile car and fuel sales, retail spending was up 0.9% in october.

Another us monetary policy maker, San Francisco fed president Mary Daly told CNBC on 16 november in an interview that the Fed isnt yet considering taking a break from increasing rates.

"Pausing is off the table right now," Daly said. "Its not even part of the discussion."

Gold reached a three-month high of USD 1,786 per ounce on 15 november on concern of an escalation in Russia's war against Ukraine after reports that missiles killed two people in poland near the ukraine border.

The tension eased after Poland and the country's NATO allies, including, US president Joe Biden, said the missiles were not from Russia, but probably fired by Ukrainian defence.

 

Gold prices since mid-year
Source: ThinkTrader

Gold price performance since mid-year

 

The US dollar index (DXY), which measures the US currencys strength against a basket of its major counterparts, slipped 0.1% on Friday. It was up 0.2% on the week.

Gold rose more than 4% last week after a report showed inflation may be slowing, fuelling speculation that the Fed will turn less aggressive in its rate increases.

 

US consumer prices rose 7.7% in October from the same month last year, compared with an 8.2% annual increase in September, according to the 10 November report. Economists had expected an 8% increase.

Rising US interest rates this year have been driving up safe-haven demand for the dollar, helping the DXY touch a 20-year high. This erodes the safe-haven appeal of holding gold, which pays no interest.

Gold prices have been under pressure since the Fed began its rate hike campaign in March to fight the fastest inflation in more than 40 years.

The Fed has raised US interest rates in four large, 75-basis-point steps, to a range of 3.75% and 4.00% by early November. Rates were near zero at the beginning of the year.

US monetary policy makers are expected to raise their target rate again in December, but at a smaller scale. Futures pricing now predicts an 81% probability of a 50-basis point rate hike at the Feds 14 December policy meeting, according to the CME Groups FedWatch Tool.

Any easing in US inflation or signs the Fed was scaling back the pace of rate increases would support the gold price.

 

Will gold remain under pressure as the Fed keeps raising rates or is there some relief on the horizon? Go long or go short on gold CFDs on our award-winning ThinkTrader platform with tight spreads and fast execution.

 
 
 
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Carl Capolingua
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Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

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Mahmoud is a market analyst, with over a decade of experience in financial markets. He follows main market movers and tracks their effect on the price chart. Mahmoud mixes technical and fundamental tools with a deeper focus on the technical side, and with his wide experience in providing educational and guidance materials to all levels of traders, he helps them in making informed trading decisions. Before joining ThinkMarkets, Mahmoud was head of market research departments in different reputed financial companies, where he provided market analysis for a variety of asset classes, including FX, equities, indices, and commodity futures. As an experienced market commentator, he was hosted by too many print and broadcast media, including not limited to Sky News Arabia, France 24, Alarabyia, Alsharq-Bloomberg, and CNBC Alarabyia to discuss key risk events their clear impact on the price action. Mahmoud holds a Master of Business Administration (MBA) from Cardiff Metropolitan University of Wales, UK, and speaks Arabic, English, and Spanish.

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Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Lesego
Lesego Mthombothi
Lesego Mthombothi is an experienced market research analyst and investment professional who proudly holds an honours degree in investment management and completed her CFA level 1.
Mahmoud Alkudsi
Mahmoud Alkudsi
Mahmoud is a market analyst with over a decade of experience in financial markets. Mahmoud mixes technical and fundamental tools with a deeper focus on the technical side, and has experience in providing guidance to all levels of traders.
Shawn
Shawn Lee
Shawn Lee has over eight years of experience in the financial market as a market analyst. Shawn provides market key insights and trade ideas through the market and technical analysis. He also held trader roles and guided traders in maximising one’s trading success.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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