The gold market has stabilised following three weeks of decline, recording an uptick of 0.36 per cent despite the prospect of upcoming interest rate hikes.
Prices have risen to $1,931 per tonne, up from $1,925 yesterday, with benchmarks increasingly influenced by evolving geopolitical factors and fears over a recession later this year.
While the current price is more than $100 below the peak recorded in last month’s rally – when prices spiked at $2,057 per tonne – it is significantly above last week’s nadir of $1,907.
Carlo Alberto De Casa, external market analyst at Kinesis Money said gold’s movements over the coming days could suggest whether to prepare for another rally or further declines over the coming weeks
He said: “Bullion has failed to surpass the resistance zone of $1,950 but has managed to remain above the support zone of $1,890-1,900 and the precious metal has started the new week moving laterally between $1920 and $1,930. From a technical point of view, a break above or below these levels would offer a first directional signal to investors.”
Commenting on Russia’s invasion of Ukraine, he added: “On the macro front, the war in Ukraine is still one of the main market drivers, of course, but investors are also paying a lot of attention to inflation, after the CPI jumped to 7.9 per cent in the US and to 7.5 per cent in Europe. “
The resurgence comes despite reports US Federal Reserve Chair Jerome Powell is reportedly ready to back a 50 basis point rise next month, lifting interest rates to 0.75-1 per cent from May 4.
Worries over inflation are maintaining the appeal of gold as a flight to safety asset, with reduced risk appetite among investors as the cost of living crisis deepens.
There are increasing expectations of a recession later this year across developed economies, following historic market volatility caused by the pandemic and Russia’s invasion of Ukraine.
Craig Erlam senior market analyst at OANDA explained: “One thing that has come with these super-sized hikes is recession risks, as evident by the inversions we’re now seeing on the US yield curve. The 2-10 inversion is now clear for all to see and has previously been a fairly reliable recession indicator. “
While gold is holding firm, he also noted that it’s not making any real headway since last month’s rally – describing it as “quite a choppy market” with “little in the way of directional clues.”
Ole Hansen, head of commodity strategy at Saxo Bank suggested there was tension between the long-term appeal of gold and short-term set-backs.
This was reflected in the movements of exchange-traded funds.
He said: “During the past three weeks, short-term momentum driven hedge funds have cut their net length by 46k lots to a six-week low at 130k lots. With total holdings in bullion-backed ETFs rising by 2.9m ounces or 29k lots during the same period, it highlights the current battle between short and long-term investment strategies. The latter being driven by worries about the growth outlook, a prolonged period of inflation forcing strong Federal Reserve action and with that the risk of a policy mistake.”