Gold closes this week with losses despite a great start. On Monday, the price shortly exceeded $2,000. Will gold develop an impressive rally again?
Since the beginning of the week, the precious metal has depreciated by 1.4%. Now it is on its way to the first weekly drop in 3 weeks.
The main factors that sent gold down from a 5-day high reached on Monday are the strengthening of the US dollar and the rise in US Treasury yield.
Both USD and Treasury yields advanced this week on expectations of a more aggressive approach from the Fed.
There have been some very tough comments by the Fed officials in recent days, and especially the recent statement made by the Fed Chair.
Speaking at a meeting of the International Monetary Fund, Jerome Powell made it clear that the regulator is set to raise interest rates by 50 basis points in May.
"Inflation is now much higher and the interest rate is more flexible. It is appropriate in my view to be moving a little more quickly," he said.
The hawkish tone of the Fed Chair weighed on the gold quotes. The precious metal closed yesterday's trading down by 0.4%, or $7.40, at $1,948.20. This is the lowest value in 2 weeks.
Silver futures for May also declined by 2.6%, or 65 cents, compared to the previous close. So, the price of silver fell to $24,621.
The precious metals market was also affected by the comments about the ECB policy made by EU officials.
In particular, Bundesbank President Joachim Nagel said that the regulator could raise interest rates as early as the beginning of the third quarter.
Now markets expect a rate hike by 20 basis points by July and by more than 70 basis points by the end of the year. If such a scenario comes true, the benchmark interest rate will be above zero for the first time since 2013. This will serve as a catalyst for the euro.
The tightening of the monetary policy of major central banks is a key negative factor for gold.
In addition, the geopolitical crisis is another driver for the value of gold. The aggravation of tensions between Russia and Ukraine allowed the asset to go slightly higher today.
At the time of writing, gold was up by 0.2% and was trading at $1,952.00.
On Wednesday, Moscow sent a draft peace agreement to Kyiv. However, there is no talk of an early ceasefire.
The US and its allies continue to supply Ukraine with weapons, including heavy artillery, so that its forces can repel Russian advances in the eastern part of the country.
The latest reports from the UK Defense Ministry suggest that Russia will try to conduct a quick and decisive fight in Ukraine before Victory Day.
Russia is seeking to demonstrate significant progress in Ukraine ahead of May 9, an important date for Moscow.
According to forecasts, a serious escalation of the conflict in this period may lead to additional sanctions against the Kremlin.
The next anti-Russian sanctions are likely to raise inflationary expectations, which will be a positive factor for gold.
Gold is expected to develop an uptrend ahead of Victory Day in Russia.
