Gold prices posted their lowest finish in more than six weeks on Friday, as the dollar climbed in a week that has helped solidify opinions among investors that the Federal Reserve is readying for an interest-rate hike in March.
“Gold prices have moved lower this week, pressured by the Fed’s clear intent to raise rates beginning in March and to begin to reduce its balance sheet shortly after it begins to increase rates,” Jeff Klearman, portfolio manager at GraniteShares, which offers the GraniteShares Gold Trust BAR,
April gold GCJ22,
February gold GCG22,
Based on the most-active contracts, gold was down 2.5% for the week — the biggest weekly decline since November 2021.
Read: Gold investment demand down over 40% in 2021, new report finds
Meanwhile, silver for March delivery SIH22,
As gold fell, the U.S. dollar, as measured by the ICE U.S. Dollar Index DXY,
Prospects for higher U.S. interest rates have been driving up the dollar. At a news conference following the Federal Open Market Committee meeting on Wednesday, Chairman Jerome Powell didn’t reject the idea of hiking interest rates at each of its meetings in 2022, and talked of the need to be “nimble.”
Powell’s press conference Wednesday “made clear that the Fed believes the economy and labor markets are strong and is able to absorb interest rate increases to prevent sustained levels of higher-than-desired inflation,” said Klearman.
Worries about how fast and how many interest rates hikes will be seen this year, as the central bank battles high inflation, are among factors that have been roiling global financial markets this week, triggering big swings in equities.
“Ten-year real rates have not moved much higher since the FOMC announcement and are still negative,” said Klearman. “And, interestingly, 10-year inflation expectations have not moved lower, hovering around 2.5%. Both of these conditions are somewhat supportive of gold prices.”
“Gold prices may continue to drift lower in this environment,” he said, but “the opportunity cost of holding gold is still positive (because of negative real rates), likely limiting gold price declines.”
Some shine came off gold Friday as tensions between the West and Russia over a potential invasion by the latter into Ukraine appeared to ease somewhat. Russia’s foreign minister Sergey Lavrov said Friday that Moscow doesn’t intend to start a war, but also “would not let our interests be rudely trampled on and ignored.”
Meanwhile, economic data released Friday showed a measure of U.S. inflation preferred by the Federal Reserve leaped 5.8% in 2021 after another sharp increase in December, underscoring why the central bank is moving to raise interest rates for the first time in four years.
Separately, U.S. consumer spending sank 0.6% in December — the first decline in 10 months. Adjusted for inflation, consumer spending shrank an even sharper 1%.
Gold prices briefly pared some of its losses immediately after data showing the the University of Michigan’s gauge of consumer sentiment fell to a final January reading of 67.2 , down from an initial reading of 68.8 and well below December’s number of 70.6. Friday’s figure represents the lowest level of consumer sentiment since November of 2011.
Among other metals, palladium’s most-active March contract PAH22,
Read: Palladium prices look poised to rise, with or without a Russian invasion of Ukraine
