Gold Prices Sink to Lowest Since End of 2020 as Markets Price In Fed Rate Hikes
By On Wednesday, gold prices dropped by roughly 1%, closing at its lowest point since the end of 2020.[0] The markets absorbed the news of a US retail sales number which was higher than initially predicted, following the CPI report of the day before which was stronger than was anticipated.[0] The US Dollar saw an increase due to both events, which usually has an opposite effect on XAU/USD.[0]
The re-pricing of how many more rate hikes the Fed will have to resort to before pausing is costing gold its January gains, said Rupert Rowling, market analyst at Kinesis Money.[1] On Wednesday, Rowling commented that the possibility of increasing interest rates reduces the appeal of precious metals, as they do not provide a yield to those who possess them, resulting in a preference for other assets which carry interest.[2]
By 21:16 ET (02:16 GMT), spot gold increased by 0.3% to $1,841.32 per ounce, while gold futures went up 0.3% to $1[3] So far this week, a decrease of 1.5% and 0.9% has been seen in both instruments, respectively[4]
March delivery of palladium (PAH23, +5.12%) fell by $21.70, or 1.5%, to $1,444.50 per ounce, while April platinum (PLJ23, +1.27%) decreased by $21.40, or 2.3%, to $917.[5]
March silver futures SIH23, +0.73% dropped 30 cents, or 1.4%, to settle at $21.572 per ounce.[6]
When U.S. interest rates go up, gold becomes less attractive as an investment since there is no yield associated with it, therefore raising the cost associated with keeping it.[3] Rising interest rates make gold less attractive as an investment because it does not pay investors any interest or dividend.[7] Since the end of last year, the financial situation has been improving, with markets pricing in the completion of the tightening cycle and anticipating rate reductions by the end of this year.[8]
It is anticipated by economists that today (Tuesday) a report will be published which will display that inflation in the United States slowed to 6.2% in January.[9] It has decreased from a high of over 9% in the summer to below 6.5% in the prior month.[9]
0. “Gold Prices Aim for Worst Month Since June 2021 as Retail Traders Boost Long Bets” DailyFX, 16 Feb. 2023, https://www.dailyfx.com/news/gold-prices-aim-for-worst-month-since-june-2021-as-retail-traders-boost-long-bets-20230216.html
1. “Gold slumps to five-week low as U.S. inflation lifts dollar, Fed fears (NYSEARCA:GLD)” Seeking Alpha, 15 Feb. 2023, https://seekingalpha.com/news/3936623-gold-slumps-to-five-week-low-as-us-inflation-lifts-dollar-fed-fears
2. “What's happening with gold price after hawkish Fed speakers, strong data” Kitco NEWS, 15 Feb. 2023, https://www.kitco.com/news/2023-02-15/What-s-happening-with-gold-price-after-hawkish-Fed-speakers-strong-data.html
3. “Gold prices gain | Retail News Asia” Retail News Asia, 15 Feb. 2023, https://www.retailnews.asia/gold-prices-gain-2/
4. “Gold prices recover from 5-week low, but Fed fears limit gains By Investing.com” Investing.com, 16 Feb. 2023, https://www.investing.com/news/commodities-news/gold-prices-recover-from-5week-low-but-fed-fears-limit-gains-3004909
5. “Gold Logs 6-Week Low; Silver Posts 11-Week Low | CoinNews” CoinNews.net, 15 Feb. 2023, https://www.coinnews.net/2023/02/15/gold-logs-6-week-low-silver-posts-11-week-low
6. “Gold futures decline after stronger-than-expected U.S. PPI reading” MarketWatch, 16 Feb. 2023, https://www.marketwatch.com/story/gold-futures-decline-after-stronger-than-expected-u-s-ppi-reading-2dd2b29d
7. “Gold continues descend as start-of-the-year rally falters” ForexLive, 15 Feb. 2023, https://www.forexlive.com/news/gold-continues-descend-as-start-of-the-year-rally-falters-20230215/
8. “Gold Prices Looked Past an Inflation Beat, But Broader Outlook Remains Bearish” DailyFX, 15 Feb. 2023, https://www.dailyfx.com/news/gold-prices-looked-past-an-inflation-beat-but-broader-outlook-remains-bearish-20230215.html
9. “Gold Technical Analysis: Gold Price Corrects Downwards | MENAFN.COM” MENAFN.COM, 15 Feb. 2023, https://menafn.com/1105577902/Gold-Technical-Analysis-Gold-Price-Corrects-Downwards
