Expectations of the Fed's interest rate hike and profit taking made gold prices plummet. However, the Russo-Ukrainian conflict supported the demand for physical gold.
Gold prices fell quite sharply ahead of the announcement of the Fed's monetary policy. Spot gold prices fell almost 1 percent to $ 1831.70 per ounce, as well as gold futures on the Comex in New York, which fell 1% to $ 1834.00. In Wednesday's trading session (26/January), the XAU/USD chart shows a decline of 0.82% to $1832.65, the lowest level since January 20.
The US dollar strengthened around a two-and-a-half-week high, buoyed by expectations that the Fed will announce a rate hike in March. Market participants themselves estimate that the Fed Rate hike in March will be followed by three more hikes by the end of the year.
Hawkish expectations of the Fed's monetary policy announcement made the US Dollar rise and felt expensive for buyers of gold with other currencies. In addition, the action of profit-taking gold also became pressure. "Gold is being driven by a combination of profit-taking from new highs and (anticipation) ahead of the Fed meeting, a slight strengthening in the US dollar, and the prospect of a rate hike," said David Meger, analyst at High Ridge Futures.
However, SaxoBank's Ole Hansen predicts that more aggressive rate hikes may boost gold prices. Therefore, the potential for policy errors can increase the risk of a recession.
Apart from the volatility of gold prices in the derivatives market, physical gold is still the prima donna. The team of analysts quoted by Reuters said that the issue of rising interest rates did tend to weaken gold prices, except for bullion and palladium. This is because investors use these metals as a safe haven for the Russia-Ukraine tensions and the overall market volatility. Palladium itself is needed in the automotive industry, while Russia is a key producer of the metal.
The latest news is that US President Joe Biden is considering personal sanctions on Russian President Vladimir Putin, if the Kremlin does launch an invasion of Ukraine.
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