Gold is facing headwinds from several sides at once, and economists at Commerzbank are reporting that prospects of higher rates are set to weigh on the yellow metal. In the last five days of trading, gold ETFs have seen increased outflows of 14.7 tons, which equates to nearly three tons per day. The world’s largest and most liquid gold ETF has also registered outflows again recently, quashing hopes that ETF investors were returning due to the marked rise in rate hike expectations.
According to the Fed Fund Futures, interest rates are expected to peak at around 5.35% in the summer, which is approximately 50 bps higher than what was anticipated in early February. This notable increase in (real) bond yields, alongside the simultaneous appreciation of the US Dollar, is putting pressure on gold.
The gold market has been on a downward trend for some time now, with prices dropping from a peak of $1,365 in April of last year to a low of $1,182 in August. This was attributed to the US Dollar strengthening against other major currencies and the Federal Reserve raising interest rates. Gold is seen as a safe haven asset, and when the economy is growing and interest rates are rising, investors tend to move away from gold and into other assets.
The uncertainty surrounding global trade and the US-China trade war has also had an impact on the gold market. Investors have been hesitant to invest in gold due to the potential for tariffs to be placed on gold imports, which could further reduce demand.
In addition, the US-China trade war has caused a slowdown in global economic growth, which has had a negative effect on gold prices. The US economy has been relatively strong in recent months, but other major economies have been struggling, including China, which is the world’s largest gold consumer.
The outlook for gold remains uncertain, and it is difficult to predict how it will react to the various headwinds it is facing. The US economy appears to be in good shape, and the Federal Reserve is expected to continue raising interest rates, which could continue to put pressure on gold prices. Additionally, the US-China trade war could create further uncertainty in the global economy, which could lead to a further decline in gold prices.
Gold has traditionally been seen as a safe haven asset, and it is possible that investors may turn to gold in times of economic uncertainty. This could provide some support for gold prices, but it is difficult to predict how the market will react.
Ultimately, it is difficult to predict how gold prices will react to the various headwinds it is facing. Investors should be aware of the potential risks and rewards associated with investing in gold, and should consider their own individual financial goals and risk tolerance when making any investment decisions.
