Gold Prices Continue to Fluctuate Despite Interest Rate Hikes
By Gold prices have been on a roller coaster ride in the past month.[0] On February 2, 2023, spot gold was up 0.64% to $1,953.76 per ounce, while gold futures jumped to $1,969.15 an ounce. The following day, spot gold dropped 0.04%, settling at $1,915.37 an ounce. Gold futures also fell 0.1% to $1,929.50 an ounce.[1] On Thursday, both instruments dropped drastically by almost 2%, having previously reached a nine-month peak during the same day. By the end of the week, they were projected to go down another 0.6%.[2]
The Federal Reserve increased the Federal Funds Rate by 25 bps as expected and announced further hikes in the upcoming meetings. The Bank of England followed suit, raising its interest rate by 50 bps.[3] Additionally, the European Central Bank raised interest rates by 50 bps.[4]
On Wednesday, the U.S. economy added a staggering 517,000 jobs in January as the unemployment rate dropped to 3.4% — the lowest level since 1969.[5] This came as a shock to many, as the market had expected only 185,000 new positions to be created.[5]
As anticipated, the ECB and the BoE both raised their interest rates by 50 basis points on Thursday, in the wake of the Federal Reserve's 25-basis-point rate hike after a year of more substantial boosts. In January, gold prices not only hit a nine-month high, but also rose by 6.5%.[6]
Gold prices decreased close to 2% as the value of the U.S. dollar increased and some investors cashed in their profits following bullion reaching a nine-month high due to the dovish comments of Federal Reserve Chair Jerome Powell.[3] Although the Fed said it is committed to maintaining its aggressively restrictive monetary policy, Powell said that signs of disinflation are start to emerge.[7] Investors have interpreted the comments to indicate that the Federal Reserve is still on course to conclude its monetary policy of tightening in March.[7]
At this juncture, it looks like gold is ready to pull back a bit, but at this point, it is still very much a bullish market, so traders may look for short-term bullish signals to emerge here as the metal tests its bullish trend line before stepping in to take advantage of the sale.[8]
Gold prices remained unchanged on Tuesday in global markets as investors refrained from taking on big risks prior to the US Federal Reserve policy announcement.[9]
0. “How much higher can gold move?” FOREX.com, 31 Jan. 2023, https://www.forex.com/en-ca/market-analysis/latest-research/how-much-higher-can-gold-move/
1. “Gold Steadies, Still Bound for Weekly Drop” Baystreet.ca, 3 Feb. 2023, http://www.baystreet.ca/commodities/6131/Gold-Steadies-Still-Bound-for-Weekly-Drop
2. “Gold nurses steep losses as dollar rebounds ahead of nonfarm payrolls By Investing.com” Investing.com, 3 Feb. 2023, https://www.investing.com/news/commodities-news/gold-nurses-steep-losses-as-dollar-rebounds-ahead-of-nonfarm-payrolls-2994617
3. “Gold slips from nine-month peak as dollar regains lost ground” CNBC, 2 Feb. 2023, https://www.cnbc.com/2023/02/02/gold-hits-more-than-9-month-high-after-powell-strikes-dovish-tone.html
4. “Gold Price Gains Bids Post-Fed, Focus on BoE and ECB” Forex Crunch, 2 Feb. 2023, https://www.forexcrunch.com/gold-price-gains-bids-post-fed-focus-on-boe-and-ecb/
5. “Gold's massive $50 daily drop is just a ‘speed bump' in the 2023 outlook but be aware of more profit-taking next week …” Kitco NEWS, 3 Feb. 2023, https://www.kitco.com/news/2023-02-03/Gold-s-massive-50-daily-drop-is-just-a-speed-bump-in-the-2023-outlook-but-be-aware-of-more-profit-taking-next-week-analysts.html
6. “Gold Ends January Near 9.5-Month High | CoinNews” CoinNews.net, 31 Jan. 2023, https://www.coinnews.net/2023/01/31/gold-ends-january-near-9-5-month-high/
7. “Gold prices holding gains as U.S. weekly jobless claims falls further to 183K” Kitco NEWS, 2 Feb. 2023, https://www.kitco.com/news/2023-02-02/Gold-prices-holding-gains-as-U-S-weekly-jobless-claims-falls-further-to-183K.html
8. “Gold Down But Not Out as Traders Eye NFP” Action Forex, 3 Feb. 2023, https://www.actionforex.com/contributors/fundamental-analysis/484687-gold-down-but-not-out-as-traders-eye-nfp/
9. “Gold Prices Today: More volatility on the cards ahead of Union Budget, Fed policy meet” Moneycontrol, 31 Jan. 2023, https://www.moneycontrol.com/news/business/commodities/gold-prices-today-more-volatility-on-the-cards-ahead-of-union-budget-fed-policy-meet-9968601.html
