Gold prices experienced a slight decline on Friday after a five-day rally, as expectations of a pause in U.S. interest rate hikes weighed on the precious metal. However, gold is still on track for its largest weekly gain since April.
Spot gold slipped by 0.2% to $1,955.90 per ounce as of 0952 GMT, although it has registered a 1.6% increase for the week and reached its highest level since June 16 earlier. Similarly, U.S. gold futures eased by 0.2% to $1,960.50.
Analyst Peter Fertig from Quantitative Commodity Research pointed out that some Federal Reserve members have expressed the strong possibility of another rate hike in September. This outlook presents a potential headwind for gold, as higher interest rates make non-yielding bullion less appealing to investors. The rise in benchmark U.S. Treasury yields on Thursday also contributed to the reduced attractiveness of gold.
Federal Reserve Governor Christopher Waller echoed this sentiment by stating his preference for additional rate hikes this year and expressing caution regarding inflation. These sentiments were also reflected in the minutes from the June Federal Open Market Committee (FOMC) meeting. However, market expectations, as indicated by CME’s Fedwatch tool, currently project only one 25 basis point rate hike at the Fed’s July 25-26 meeting.
The opportunity cost of holding non-yielding bullion increases with higher interest rates, which can impact the demand for gold. Meanwhile, the U.S. dollar approached a 15-month low due to expectations of slowing U.S. inflation.
Despite gold’s weekly advance being less pronounced than the broader decline in the dollar, there is still a risk of a pullback if short covering drives up the U.S. currency, according to Ole Hansen, Head of Commodity Strategy at Saxo Bank.
In other metals, spot silver dipped by 0.5% to $24.74 per ounce, but it is poised for its most substantial weekly gain since March. Platinum experienced a marginal decline of 0.2% to $970.47, while palladium saw a 1.1% drop to $1,280.57. Both platinum and palladium, however, are on track for a second consecutive weekly rise.
Gold’s performance remains subject to various factors, including the trajectory of U.S. interest rates, inflation trends, and currency movements. Market participants will closely monitor upcoming economic data and central bank announcements to gauge the future direction of the precious metal.
