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Gold bears likely to take charge as interest rates eyed

After peaking at $1,300 an ounce during US elections, the yellow metal fell 11% in January, but prices have recovered after that

Image Credit: Supplied
Carsten Menke
Gulf News


Gold bears may take charge as a stronger dollar and a swift rise in interest rates may continue to weigh on sentiment.

On Friday, gold traded at $1,269.50 an ounce, the lowest level in nearly two weeks. After peaking at $1,300 an ounce during US elections, the yellow metal fell 11 per cent in January, but prices have recovered since then.

“We see some more downside for gold and expect prices to move towards our three-month target of $1,200 per ounce,” said Carsten Menke, commodities research analyst at Julius Baer.

“We stick to our neutral view on gold with a stronger dollar and rising interest rates being the key downside risks,” he said.

Vaqar Zuberi, Head of Hedge Funds - Mirabaud Asset Management, agrees. “Prices of the precious metal are expected to remain under pressure as inflation expectations continue to remain at muted levels,” Zuberi said.

“Over the next week investors will be watching economic data from the US and the Federal Reserve decision on interest rates along with accompanying statement for further direction,” he added.

The US Federal Reserve hiked rates in March and said they were on course for two more rate hikes this year, and three more next year. A rate hike is generally good for the US dollar, and therefore, negative for a dollar-based asset like gold.

However, holdings of SPDR Gold, the world’s largest gold-backed exchange-traded fund, rose 0.17 per cent to 860.17 tonnes on last Monday. Holdings have risen six tonnes in the past two sessions, indicating investor interest in the perceived safe-haven asset.


In other commodities, oil prices may remain range-bound for now, according to Saxo Bank.

“We may see the price tick higher after finding support towards $50 (Dh183.5) per barrel on Brent and below $50 per barrel on WTI,” Ole Hansen, head of commodity strategy at Saxo Bank, said in a note.

Brent crude on Friday was flat at $52.05 per barrel, after losing 5 per cent last week.

“The geopolitical risk premium has been removed but can return while in the US we have seen production growth slow during the past couple of weeks,” Hansen said.

BOX - US market update

US markets stays prone to uncertain geo-political events and results. “Over the next few weeks, with earnings season continuing to deliver on expectations, developed equities markets remain susceptible to downside risk on geopolitical concerns or unexpected corporate results,” Zuberi from Mirabaud said.

On Friday, the Dow Jones Industrial Average closed 0.19 per cent lower after weaker than expected US GDP data. The S&P 500 also closed 0.19 per cent lower at 2,384.20.