Gold Records 5 Percent Weekly Dive, Sharpest in More Than a Year

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Despite rising on Friday, gold prices fell by 5% to $1,783 this week after the Federal Reserve announced the upcoming first interest rate hikes in 2023 –hence sending the dollar up.

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According to ED&F Man Capital Markets analyst Edward Meir the Fed reversal in its policy outlook caused the fall in prices, as he adds that “the reaction in gold has been somewhat overdone.”

Gold to Push Higher

“Despite the current high-growth, inflationary environment, the proposed Fed rate hikes are not expected to set in for at least another 18 months. So after a little bit more weakness here, gold prices will regroup and push higher,” Meir told Reuters.

As reported by Investing, spot gold was down 1.1% to $ 1,839.06 an ounce after falling to $1,833.65 earlier in the Fed session -–a bottom since May 14–- while gold futures in the United States pipped to 0.3% or $ 1,861.40 per ounce.

Other metals reported movements: silver was up 0.3% to $27.71 an ounce, while palladium increased 1.6% at $2,805.86 per ounce, and platinum dropped 1.6% to $1,134.50 the ounce.

With investors now evaluating the timing of when the Fed will surely begin trimming its bond purchases, bullion seemed to settle close to its lowest level in six weeks.

Waiting on the Monetary Policy

The tightening monetary policy could kick in earlier than anticipated, as Fed Chair Jerome Powell asserted that the central bank would begin a discussion about scaling back bond purchases to support financial markets during the pandemic, as informed by Bloomberg.

However, Powell was quick to warn that debates about increasing interest rates would be “highly premature.”

Experts from Barclays Plc assert that, given the surprisingly hawkish intention to accelerate the start of rate hikes, the central bank is likely to properly announce tapering and start to slow its $120 billion in monthly bond buying by November, two months after the gathering.

“The taper tantrum trade is hitting gold the hardest right now and could last a couple more sessions,” said Edward Moya, a senior market analyst at Oanda Corp. “Gold looks like a falling knife but eventually the longer-term prospects will attract buyers. Long-term bets on gold could start to emerge closer to the $1,750 level, but some might wait and see if one last thrust lower eyes the $1,675 level.”