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Gold prices rise despite heading for the worst weekly performance

Gold Prices

Gold prices have witnessed a rise, but they are heading for the worst week performance since last March of 2020.

This comes after the Federal Reserve’s shift towards a monetary tightening tone caused the dollar to rise and negatively affected the attractiveness of the yellow metal.

Spot gold prices rose 0.5% to become $1,781.96 an ounce, but down 5% for the week. The US gold futures gained 0.5% rising to $1,782.70.

The Federal Reserve’s change in policy expectations triggered a drop in gold prices, said Edward Meyer, analyst at ED & Fman Capital Markets, adding that the reaction in gold is “somewhat overdone”.

“Despite the current high-growth, inflationary environment, the proposed Fed rate hikes are not expected to set in for at least another 18 months. So after a little bit more weakness here, gold will regroup and push higher,” Meir said.

Reducing the purchase of assets

The US central bank indicated on Wednesday that it will consider reducing its asset purchase program at each meeting it holds, and has brought forward expectations of the first post-pandemic interest rate increases to 2023.

After the monetary tightening comments from the Federal Reserve, the dollar jumped to a two-month high and is heading for its best week in nearly nine months.

Although gold is seen as a hedge against inflation, higher interest rates will reduce its attractiveness as it means that the opportunity cost of holding it will increase.

As for other precious metals, palladium gained 1.9% reaching $2543.61 an ounce, but it is heading towards the worst week since late March, after a sharp decline recorded on Thursday.

Silver rose 0.7% to $26.09 an ounce, but it is down more than 6% for the week. Platinum rose 0.6% to reach $1064.77 an ounce.

last Wednesday, the Fed began closing the door to a monetary policy driven by the pandemic. Eleven out of 18 bank officials expected at least two interest rate increases by a quarter point in 2023.

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