Market Overview

Gold has lost its function as a safe haven asset over the course of recent years as its prices have been seen to move in the same patterns as typical risky asset from the start of the pandemic and the beginning of the vast monetary stimulus delivered by major central banks and governments, and foremost by the Federal Reserve (Fed). Cheap money at almost zero rates amplified by stimulus programs mostly affected industrial and energy assets while undermining the low-yield Dollar-denominated debt. Investors were therefore seeking higher returns from other assets, including gold. Gold prices rose from March 2020 lows at $1450 per troy ounce to the peak at $2077 in March 2022.

The Dollar and debt yields rose in 2022 mostly as a result of the Fed raising interest rates.  The prices of the bullion dropped to $1616 per ounce in November 2022. This clearly demonstrates the primary nature of gold as a financial asset that moves in the opposite direction to the Dollar. So, gold prices and stocks started to recover amid expectations of a possible slowdown of interest rate hikes by the Fed. Gold prices rose to $1949 per ounce by January 26, and stepped back by the end of January as the euphoria surrounding the expectations that the Fed may take a less hawkish approach to its interest rate hike faded. Such expectations are have already been priced in by more than enough as investors expect the Fed to raise interest rates by 25 basis points to 4.75% on February 1. This is not even a U-Turn of the Fed’s monetary policy.

Gold prices are losing traction as they fell to $1906 from $1921 per ounce on the eve of D-day. The Fed’s decision may direct gold prices, not only for this week but they may set a trend for the whole of February. If the monetary watchdog continues with its ultra-hawkish rhetoric, gold prices may continue their downside correction to $1900 per ounce, and possibly further down towards the $1820-1830 strong support levels. If investors suspect that the Fed may plan to ease its monetary tightening in the near future, prices may continue to test levels at $1950-2000 per ounce in the coming weeks.

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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.