Following the results of the last week, gold has been able to perform a rebound for the first time in 3 weeks. Nevertheless, experts say that the main reason is seasonality. So, the rally of gold is likely to last until February.
Gold ended last week with a decrease of 0.9% due to the strengthening of the US dollar. On Friday, the greenback index advanced by 0.4% against its main rivals, approaching the highs of July last year.
The greenback is gaining momentum amid the worsening epidemiological situation in Europe. To contain the spread of COVID-19, Austria announced a 20-day nationwide lockdown. Germany is also planning to impose stick quarantine restrictions in the near future.
The US dollar's rise to almost a 16-month high was facilitated by hawkish comments of Fed policymakers. Many officials believe that inflation is out of control. For this reason, they believe that the Fed may hike the key rate and tapper asset purchases earlier than planned. These measures may help the regulator cap growing inflation.
Due to hawkish rhetoric, gold fell by 0.5%, or $9.8, at the end of last week. On Friday, it was trading at the lowest level since November 10 at $1,851.6, dropping for the third consecutive day.
Experts predict that gold prices could stay unstable this week as investors will continue to assess the prospect of a hawkish stance of the Fed amid rising inflation.
So, discussions over the possible key rate hike and rising inflation are still in the limelight. For this reason, gold is likely to trade this week in the range between $1,840 and $1,890, analyst Edward Moya said. Moreover, it may consolidate in his rage for some time until there is more clarity on the Fed's stance on the benchmark rate.
Meanwhile, analysts believe that if gold falls below $1,840 this week, investors will consider this decline as a good opportunity to open long positions. As the holiday season approaches, the focus will gradually shift from the key rate hike to inflation. So, gold may resume an upward movement.
According to CIBC experts, gold is now in a favorable position. The precious metal market managed to break out of a 5-month consolidation and entered a seasonally strong period, which usually lasts from November to February.
Currently, growing inflation is helping gold to withstand the strengthening of the US dollar, the latest report of the Bank of Canada stated. However, it may also regain ground amid seasonality.
CIBC analysts drew attention to the fact that a surge in inflation occurred not only in the United States. In the UK, inflation rose to 4.2% year-on-year, which was the largest reading in 10 years. In Canada, consumer prices jumped by 4.7% on annual terms, logging the highest rise in 18 years.
Experts believe that in the near future inflation pressure will continue to grow. Therefore, gold may reach $1,950. Besides, demand for safe-haven assets is likely to climb amid coronavirus woes in Europe and the further weakening of bitcoin.
At the same time, analysts do not rule out that in the long term, gold may face problems such as the strengthening of the US dollar and the likelihood of a faster tightening of the Fed's monetary policy.
