Gold dips as central banks say more rate hikes in pipeline

Gold prices dipped last week despite a rally on Friday, after the US Federal Reserve and the European Central Bank indicated more interest rate increases were needed to curb inflation.

The afternoon fixing on Friday in London was $1,792.55 an ounce, compared with $1,796.15 a week earlier. Thai selling prices were quoted at 29,600 baht per baht-weight (15.2 grammes), up 50 baht from the previous week.

“A lot of traders are focusing on both the Fed and the ECB, which signalled more tightening, and we’ve seen global bond yields rise significantly, and that’s why gold is having a down week,” said Edward Moya, senior analyst with the currency exchange Oanda.

The Fed on Wednesday raised rates by 50 basis points as expected, and chairman Jerome Powell said more hikes were needed next year, despite growing recession worries. The ECB and the Bank of England signalled a similar approach.

Prices were firmer on Friday on a corrective bounce from strong selling pressure the previous day, said Jim Wyckoff, senior analyst at Kitco Metals.

“Gold may be getting a mild safe-haven bid as the US and global stock markets are selling off in the wake of still-hawkish major central banks.”

Commerzbank sees gold falling back towards $1,750 until it is clear that the Fed’s hiking cycle is over, and expects prices to rise to $1,850 by the end of 2023.

In the physical market, Indian gold dealers offered bigger discounts to attract consumers who were delaying purchases due to a spike in prices, while China’s reopening plans kept premiums firm.

Discounts in India were at their highest in a month, at up to $25 an ounce over official domestic prices, up from $20 a week earlier.

“China continues to see restrictions easing, so there is demand. However, buying was limited since spot prices went above $1,800. If prices remain below that level, demand will improve,” said Peter Fung of Wing Fung Precious Metals.