Spot gold recorded its biggest weekly overcast line since November 26, closing 2.35 per cent lower at $1791.57 an ounce after falling below the $1780 mark in intraday trading. The Fed said this week that it was likely to raise interest rates faster and more sharply in the coming months, and the performance of US economic data also supported the Fed's strong response to high inflation, helping the dollar index hit its biggest Zhou Yang line since the week of June 18. it rose 1.64 per cent to 97.216, the highest since July 1, 2020. Tensions in Ukraine have boosted risk aversion, but have limited support for gold prices.
The Federal Reserve shines its sword on inflation
The Fed reiterated its plan to end its pandemic bond-buying program and hinted that it would raise interest rates in March. Chairman Powell said that there is still room for the Fed to further tighten policy without harming jobs. Traders in the interest rate futures market expect the Fed to raise interest rates five times this year.
Edward Moya, senior market analyst at brokerage OANDA, said: "the current market environment is very disadvantageous to gold. Investors are thoroughly reassessing the Fed's expectations. There is still some momentum to sell gold, but the price of gold has fallen below $1800 and we are approaching a potential bottom. "
But Peter Cramer, senior managing director of SLC Management, said the Fed's policy decisions were destined to lead to a very slow-moving ship. "the Fed operates on an annual basis, probably on a quarterly basis, rather than on a monthly basis," Cramer said.
Lee Ferridge, head of North American macro strategy at State Street Global Markets (State Street Global Markets), said: "the idea of reducing the balance sheet mentioned in the statement now makes us think it will be on the agenda in June."
Brian Lan, managing director of dealer GoldSilver Central, said:'it has been confirmed that they will raise interest rates, which is why we are seeing a rise in the dollar. Of course people will sell gold.
"Powell completely put an end to all 'gradual' policy guidance because the economic outlook is too uncertain," Aneta Markowska and Thomas Simons, analysts at Furei Financial Group (Jefferies), wrote in a report.
Chris Zaccarelli, chief investment officer of Independent Advisor Alliance, said: "he didn't say they would not raise interest rates more than four times this year, which shows that there is flexibility to raise interest rates faster than anyone expected if necessary."
Economic data support tougher Federal Reserve
Companies replenished near-depleted inventories to meet strong demand for goods, boosting a sharp rise in US gross domestic product ((GDP)) in the fourth quarter, with the strongest annual growth in nearly 40 years in 2021, helped by trillions of dollars in government aid for the novel coronavirus epidemic. Despite pandemics, tight supply chains and inflationary resistance, the economy is expected to continue to grow.
The (PCE) price index of personal consumption expenditure in the United States rose 5.8% in December from a year earlier, the biggest increase since 1982. The cost of food, furniture, appliances and other goods has risen as active consumer spending conflicts with supply chain bottlenecks.
"We are finally beginning to build an American economy oriented toward this century, and I urge Congress to continue this momentum by passing legislation to improve American competitiveness, support our supply chain, strengthen manufacturing and innovation, invest in households and clean energy, and lower food prices," President Joe Biden said in a statement. "
Harshal Barot, Senior Advisor for South Asia Studies at Metals Focus, said: "the current expectation is to raise interest rates five times this year. In a sense, market expectations of monetary policy have become increasingly hawkish, which is bad for gold, and we have seen a big boost to the dollar index. "
Sal Guatieri, capital markets economist at Mandike Bank, said: "although Omicron will lead to a slowdown in growth in the first quarter, economic activity is expected to rebound beautifully once the latest wave of infections subsides and supply chain constraints ease. The Fed needs to be 'modest and flexible' in dealing effectively with potential economic strength, worsening labour shortages and stubbornly high inflation. "
"Don't fight the Fed," said Terence Wu, an analyst at OCBC Bank in Singapore. Don't fight the market. The Dollar Index is likely to continue to rise to the next target area of 97.70 Universe. There will be no technical resistance to breaking through this area until it is close to 100.00. "
The situation in Ukraine deteriorates
The market is worried about the build-up of Russian troops on the Ukrainian border. Tensions have soared several levels as the West accuses Russia of preparing for a war to prevent Ukraine from joining NATO and has stepped up its response to any Russian military action in Ukraine, leading to some safe-haven buying in the gold market. But given that the euro cannot be an attractive investment vehicle for European economies to weather the current crisis, some speculative money in the gold market has flowed to the dollar.
The US State Department announced on Sunday that it would order the families of US diplomats to leave Ukraine as President Joe Biden weighed the option of increasing US military assets in Eastern Europe in response to Russia's continued military buildup. The order also allows diplomats at the US embassy in Ukraine to voluntarily decide whether to leave, one of the clearest signs yet that US officials are ready for aggressive Russian action in the region.
NATO said on Monday that it was putting its troops on standby and sending more warships and fighter jets to strengthen the military forces in Eastern Europe. Once Russia invades Ukraine, these troops will be deployed to Europe at any time.
Us President Joe Biden said on Tuesday that he may deploy some of the 8500 US troops already on standby in the near future, but he vowed not to deploy US troops in Ukraine. Biden also said he would consider imposing personal sanctions on Russian President Vladimir Putin if Russia invades Ukraine.
The United States said on Wednesday (January 26) that in view of the Moscow authorities holding talks with Western countries while strengthening its military build-up in the Ukrainian border area through new exercises, the United States has drawn up diplomatic channels to address Russia's comprehensive demands in Eastern Europe.
Russia has condemned the West's "hysterical" response to the build-up of Russian troops on the Ukrainian border. The Kremlin accused the United States and its allies of escalating tensions by announcing plans to send more NATO troops to Eastern Europe and evacuating the families of American diplomats in Ukraine.
Tensions in Ukraine have been rising for months, with the Kremlin massing about 100000 soldiers near the Ukrainian border, a move the West says is preparing for war to prevent Ukraine from joining NATO. Russia denies planning an invasion. Russia wants to redraw the European security map and hopes that NATO will never accept Ukraine and withdraw its troops and weapons from the former Warsaw Pact countries that joined NATO after the Cold War.
The United States on Wednesday provided a written response to Russia's comprehensive security requirements, a key step in the fragile diplomatic process. Russia has held new military exercises on land and at sea near Ukraine. Us Secretary of State Lincoln told reporters that the reply proposed a serious diplomatic approach and made a principled and pragmatic assessment of Moscow's concerns. He added that the United States is open to dialogue.
Michael Langford, director of AirGuide, a corporate consultancy, said: "the market does not know how the potential conflict in Ukraine will affect global markets. There is a lot of speculation and [I] expect gold prices to remain volatile in the short term."
Avtar Sandu, an analyst at Phillip Futures, said in a report that investors sought safety, fearing that the United States might extend sanctions against Russia if Russia attacked Ukraine, or that the European Union might take new measures against Russia.
"if Russia invades Ukraine, investors are worried that the US or EU may extend new sanctions, but precious metals are under pressure from the Fed to accelerate monetary tightening expectations," Avtar Sandu, an analyst at Huili Futures, said in a report.
Suki Cooper, an analyst at Standard Chartered Bank, said: "increased geopolitical tensions have triggered some interest in risk aversion, but in such safe-haven situations, gold prices tend to preserve their value at best rather than rise significantly."
