Gold futures ended the week on a sour note, as Friday saw prices decline for the third consecutive week. According to Adrian Ash, director of research at BullionVault, the recent downturn in gold prices is a direct reflection of the lack of optimism in the market concerning the Federal Reserve’s ‘pivot’. In other words, the strengthening U.S. economy and the persistence of high inflation have dashed the hopes of a potential Fed pivot, which has led to the falling gold prices.
Looking ahead, Ash believes that precious metals will remain a trader’s market until either the economic data or geopolitical picture changes. He believes that gold will remain rangebound between strong yet slower inflation and soft yet continued growth.
At the close of trading on Comex, April gold futures had dipped by a mere 0.03%, to settle at $1,850.20 per ounce. This represented a week-on-week decrease of 1.3%, with the most-active contract falling for the third week in a row.
The recent downturn in gold prices is a stark contrast to the bullish sentiment that had been seen in the market over the past few months. In fact, gold prices had hit a nine-month high of $1,921.50 per ounce in early February. This was as a result of the weakening U.S. dollar, which had been driven by the Federal Reserve’s commitment to low interest rates and its ongoing stimulus measures.
However, the market’s optimism began to fade as the U.S. economy showed signs of recovery, and the Fed’s commitment to its low interest rate policy and stimulus measures began to waver. This was compounded by the continued rise in inflation, which had been driven by the increased demand for goods and services as the economy began to reopen.
The combination of a strengthening economy and persistently high inflation has had a detrimental effect on gold prices, as investors have shifted their focus away from the precious metal and towards other assets that are seen to offer higher returns. This has been compounded by the fact that the U.S. dollar has been strengthening, as investors have sought out safe haven assets in the face of the ongoing economic uncertainty.
In conclusion, gold prices have been on a downtrend for the past three weeks, as the market’s optimism concerning the Federal Reserve’s ‘pivot’ has been dashed by the strengthening U.S. economy and the persistence of high inflation. Looking ahead, precious metals are likely to remain a trader’s market until either the economic data or geopolitical picture changes. Gold is expected to remain rangebound between strong yet slower inflation and soft yet continued growth.
