Gold prices chalked up its biggest weekly loss last week in five months, and suffered its worst monthly showing since September, amid looming fears of multiple rate hikes from the Federal Reserve this year.
Speculation of imminently rising interest rates has boosted the dollar and driven bullion investors, with prices dropping to $1,782 per ounce last Friday following peaks of over $1,850 earlier this month.
Rate hikes continue to weigh on the price at the restart of trading, with prices remaining below the psychologically important $,1800 mark, with the precious metal currently being offered to investors at $1,791 per ounce.
Commenting on the potential for further increases in interest rates, Daniel Briesemann, analyst at Commerzbank, said he expected four Federal Reserve rate hikes of 25 basis points each this year.
He also expected interest in gold to rebound this week amid beneficial wider economic factors, such as the approaching publication of “disappointing” US labour market data, higher than expected Eurozone inflation and the upcoming ECB meeting.
These factors could cause the dollar to depreciate and a revival of interest in gold from investors.
Briesemann said: “In our opinion, the current weakness of the gold price should be temporary because we envisage macro-level support for the gold price during the course of this week.”
The note also pointed to the latest data from Commodity Futures Trading Commission, suggesting gold’s brief surge last week prior to the emerging fears of interest rate hikes was driven by speculation.
The analyst explained: “Net long positions were expanded by 41 per cent to over 101,000 contracts. Speculative financial investors are likely to have taken profits in the meantime.”
Rupert Rowling, market analyst at Kinesis Money, believed that gold prices could be in a tug of war between two competing factors.
He argued the two main drivers of the market were imminent interest rate hikes and geopolitical tensions in Ukraine, which were likely to have contrasting impacts on gold.
The analyst said: “Any sign of further escalation in tensions over Ukraine is likely to be supportive for gold as investors seek out haven assets in a flight to safety. While the Bank of England’s likely rate hike would be detrimental for gold as it would be further confirmation that global interest rates are on the rise, making the non-yield bearing asset of gold less attractive.”