Gold futures settled at their highest price in more than two months on Tuesday, finding support as U.S. stock indexes traded lower a day ahead of the Federal Reserve’s announcement on monetary policy.
Prices for the haven metal also climbed as the International Monetary Fund cut its forecast for global economic growth this year on the aback of weaker outlooks for China and the United States.
This week, gold has drawn safe-haven bids amid wild swings in values for stocks and geopolitical tensions in Europe, where there are fears about the annexation of Ukraine by Russia.
“Investors should not forget that increased equity market volatility, if it lasts long enough, at some point triggers a capitulation of gold buyers,” wrote Alex Kuptsikevich, a senior financial analyst at FxPro, in a daily note.
On Tuesday, February gold GCG22, +0.53% GC00, +0.53% rose $10.80, or 0.6%, to settle at $1,852.50 an ounce, following a 0.5% climb on Monday. The settlement was the highest for a most-active contract since Nov. 18, FactSet data show.
Higher interest rates may undercut support for gold. Investors have grown anxious about how rapidly the Fed will act to combat high inflation by raising interest rates and reducing its nearly $9 trillion balance sheet.
“It is expected for the central bank to keep rates as they are,” James Hatzigiannis, chief market strategist at Ploutus Capital Advisors, told MarketWatch. “However, we believe that the dialogue coming from the fed will be hawkish and as a result, we think gold will react negatively to that dialogue in the very short term.”
However, Brien Lundin, editor of Gold Newsletter, pointed out that the first interest rate hike in a tightening cycle has historically sparked a rally in gold.
“That might seem counter-intuitive, but the record clearly shows the pattern,” likely because “traders are shorting gold in anticipation of rate hikes, and having bought the rumor, they ‘sell the news’,” he told MarketWatch.
And if the stock market volatility forces the Fed to pull back from its tightening plans, that development would also be interpreted bullishly for gold, said Lundin. “So, in effect, either path forward is helpful for the gold price.”
The moves for gold on Tuesday came as the yield for the 10-year Treasury note TMUBMUSD10Y, 1.785% was up at around 1.773%, while a gauge of the U.S. dollar, the ICE U.S. Dollar Index DXY, +0.11%, was climbing 0.1%.
Gold prices briefly pared some of its gains in the immediate wake of U.S. consumer confidence index data showing a fall to 113.8 in January from a revised 115.2 in December. Economists polled by The Wall Street Journal had forecast the index to shrink to 111.7.
Meanwhile, gold’s sister metal silver for March delivery SIH22, +0.53% edged up by 10 cents, or 0.4%, to end at $23.896 an ounce, after a 2.1% drop on Monday. It trades around 1.6% lower week to date.
Last week, silver had become as overbought, said Peter Grant, vice president and the senior metals strategist at Zaner Metals and Tornado Precious Metals Solutions. Silver gained 6.1% last week.
“That overbought condition has now been relieved, so we’ll be looking to see if the buyers come back in” ahead of nearby price support levels, he said in his latest newsletter. “Silver is probably most worried about what the Fed might do. Rapid rate increases to tamp inflation can take the wind right out of an economic recovery’s sails.”
Among the other Comex metals, March copper HGH22, +1.35% tacked on nearly 0.9% to $4.45 a pound.