Gold prices fell drastically. Expectations of a Fed rate hike were the biggest catalyst that weighed on gold this week.
Spot gold prices fell 0.6% to $1,785.71 per ounce over the weekend (29/January). This level is the lowest in six weeks. Gold futures on the Comex in New York fell 0.5% to $1,786.60, as did the XAU/USD chart below which was lower at $1,791.16. In the past week, the total decline in gold has reached 2.5%.
"The decline in gold prices is a continuation of the sell-off on Wednesday as the market digests Fed Chair Jerome Powell's comments about a rate hike," commented Philip Streible, analyst at Blue Line Futures in Chicago.
The FOMC's announcement about the prospect of a rate hike triggered gold prices to slide below the 100-day and 200-day moving averages. Higher-than-expected inflation is the main reason for Fed policymakers to assess interest rates should be raised as soon as next March.
"The current market conditions are very detrimental for gold. Investors are really reanalyzing their projections for the Fed's policy," said Edward Moya, analyst at OANDA, "There is still selling momentum in gold, but we are getting closer to a potential bottom area because it's already crossed $1,800."
Investors Choose to Invest In US Dollars Over Gold
The signal for a rate hike boosted the US dollar to a seven-month high. A strong US dollar makes non-yielding gold expensive and less attractive to invest in today. "Any rebound that is not supported by safe-haven seekers, sooner or later will experience resistance, as long as the economy is in recovery mode," wrote Julius Baer analyst Carsten Menke.
Menke added that he did not find a massive flow of gold buying from safe-haven seekers. Instead, they make selective purchases which will probably continue as long as the economic backdrop does not deteriorate significantly.
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