Gold futures fell on Friday, as hawkish comments from Federal Reserve Chairman Jerome Powell on Thursday and weaker investor appetite for the haven metal prompted prices to post their first weekly decline since early October.
“The tailwind in gold has gone silent,” said Adam Koos, president at Libertas Wealth Management Group. The yellow metal was formerly supported, in part, by the thought that the U.S. would be hitting a ceiling on interest rates and dissipating inflation, but “none of that seems to matter under the shadow of the Fed.”
On Friday, gold for December delivery fell $32.10, or 1.6%, to settle at $1,937.70 an ounce on Comex, down 3.1% for the week, according to Dow Jones Market Data. Prices based on the most-active contract marked the biggest daily decline since mid-April and first weekly loss in five weeks.
Fed helps set overhead resistance
In remarks on a panel at the International Monetary Fund Thursday, Powell said Fed officials are “gratified” with the progress made so far to bring down U.S. inflation but weren’t yet confident that interest rates are high enough to bring inflation down to their 2% target over time.
“Gold is an inmate within the confines of overhead resistance, and the door to freedom resides at $2,060,” Koos told MarketWatch. “Just when an exit plan seems near — when a break-out with parole seems promising — Jerome Powell came in like the warden on Thursday, saying that he’s unconvinced that monetary policy has been sufficient thus far, and that inflation could still warrant future rate hikes.”
Risk aversion
Gold prices have also been influenced by a fall in investor appetite, as fears that Middle East tensions will spill over to wider regions have eased, said Lukman Otunuga, manager, market analysis, at FXTM.
If concerns over the spread of the Middle East conflict continue to ease, that may “pave the way for further downside” in gold prices, he told MarketWatch.
However, should fears return and intensify over a potential spillover of the Israel-Hamas conflict, there may be a “fresh wave of risk aversion” that would send investors towards “safe-haven destinations” like gold, said Otunuga.
“It’s not only the developments in the Middle East, but also Russia’s invasion of Ukraine that could fan fears about a global recession,” he said.
Price potential
For now, gold has the potential to extend its losses, said Otunuga.
Ahead of Friday’s gold-price settlement, he warned that a “solid breakdown and daily close” below $1,945 would open the doors toward a fall to the 200-day simple moving average at $1,934, before the U.S. October consumer price index report on Nov. 14.
Koos, meanwhile, said gold is likely to remain in “price prison, staring at the ceiling of $2,060” an ounce, until the Fed decides to slow its role in fighting inflation.
A move beyond that price level represents “freedom and new all-time-highs,” he said. “Until then, patience will be a requirement, at the very least.”