This week, the demand for safe-haven assets has increased significantly. Gold has benefited from another spike in US inflation. But it seems that bullion is starting to seriously lose to the more reliable dollar.
Yesterday's trading on the New York COMEX was the last one this week. Today, many US markets are closed due to the Good Friday holiday.
Gold finished the shortened working week with an increase. Since Monday, its quotes have increased by 1.5%. The main growth driver for the yellow asset was the statistics on consumer prices in the US for March.
Last month, inflation in America accelerated to 8.5% year on year. This is a new 40-year high. The last time the rate was at such a high level was in January 1982.
The record price increase not only increased the value of the precious metal, but also reinforced the Fed's intention to raise interest rates more sharply at its next meeting.
In March, the US central bank raised rates by 25 bp for the first time in four years. Now that inflationary pressures have increased, it is highly likely that the Fed's next move will be to raise the rate by 50 bps.
This version was confirmed on Thursday by New York Fed President John Williams. He said raising interest rates by half a percentage point in May would be a "smart option" for the US central bank.
The hawkish rhetoric of Fed officials has fueled US Treasury yields across the curve. This acted as fuel for the dollar.
Yesterday the greenback index jumped 0.5% against its main competitors. The currency broke through the psychologically important level of 100 points.
The steep dive of the euro also helped the greenback to strengthen. The EU currency fell sharply on the European Central Bank's dovish position. Yesterday, the ECB's meeting for monetary policy took place. The central bank decided to leave its course unchanged for the time being.
Another driver for the dollar was the release of the consumer sentiment index of the University of Michigan. In April, the indicator rose sharply to 65.7 from the March value of 59.4 points.
The powerful momentum that the greenback received had a negative impact on gold quotes. On Thursday, the asset fell 0.5%, or $9.80. The price dropped to $1,974.90. This is the first drop in the value of the precious metal in six trading sessions.
Recall that in the outgoing week, bullion tested a critical level on the way to $2,000. But, according to analysts, gold will not be able to break out of the current price range in the near future. The main obstacle is the dollar.
Now we are seeing strong bullish dynamics of the US currency. According to forecasts, it will continue in the short term. As long as the greenback index remains above 100, the yellow asset has almost no chance of approaching $2,000.
What can help gold?
In the foreseeable future, the gold market will continue to follow the rhetoric of the world's central banks, many of which are hawkish. The Bank of England's interest rate decision is particularly important now.
Tightening the policy of major central banks may lead to a weakening of the US currency. This is a favorable factor for the precious metal.
In addition to the fall of the dollar, bullion may receive support from geopolitics. Currently, most experts predict a further escalation of the military conflict in Eastern Europe.
This week, Russia threatened to deploy nuclear weapons and hypersonic missiles if Sweden and Finland join NATO. The comment came from the Deputy Chairman of the Security Council of the Russian Federation Dmitry Medvedev.
This happened just a day after US President Joe Biden announced that America would provide Kiev with additional firepower, including heavy artillery, worth $800 million.
If the situation in Ukraine continues to heat up, gold may come close to $2,000. However, traders should be prepared for the opposite situation.
The settlement of the conflict in Eastern Europe or the reduction of inflationary risks may lead to a significant drop in the value of the precious metal – up to $1,900.
