Recent developments show investors’ concerns regarding a possible fall in gold prices due to the strengthening of the US dollar (USD) exchange rate due to further interest rate increases by the US Federal Reserve (Fed) in early May 2022. Although it is still considered a suitable financial instrument to hedge against inflation, rising interest rates also increase the opportunity cost of holding non-profitable precious metals and holding then becomes unprofitable. Instead of gold, in recent weeks short-term treasury bills are becoming popular with investors.
On 22 April 2022, at 6:31 am CET, investment gold traded on the Commodities Exchange Center (COMEX) commodity market at US$ 1,953.90 per troy ounce with a daily gain of +0.2926%. The price of gold strengthened compared to 21 April, when at 7:44 pm CET gold traded on the COMEX market at US$ 1,946.73 per troy ounce. The current growth rate of gold was achieved in a situation, where according to the US Dollar Currency Index (DXY), we saw the USD at a price level of 100.57, with a very slight decrease of -0.01%. At the same time, the global currency pair EUR/ USD traded on the foreign exchange – Forex market at a mutual exchange rate of US$ 1,084 per EUR, with the daily strengthening of the EUR by +0.05% against the USD.
In the 16th week of 2022, the price of gold increased close to US$ 2,000 per ounce thanks to fears over the Russian-Ukrainian conflict and rising inflation spurring demand for safe havens, but fears of a strong USD prevented the price from reaching US$ 2,000 and, in particular, to maintain this value of gold. “Gold would look to consolidate in the near term and is currently doing so at around US$ 1,940 – US$ 1,960 per ounce”, said Brian Lan, GoldSilver Central manager director. He also added that investment gold could find its price support around US$ 1,915 – US$ 1,930 per troy ounce. Investors also looked into weekly U.S. unemployment claims, which fell to their lowest level in 52 years, further improving their risk appetite. This was reflected in the outflow of precious metals, including gold trading, towards the stock market, where returns from short-term trading have improved.
However, the main factor influencing the price of gold on the commodity market, namely the strengthening USD, persists and largely shapes investors’ interest in buying gold, along with current investor sentiment, which raises questions whether to buy gold now or after an increase in interest rates by the Fed. At the same time, investors are asking questions regarding the Russian-Ukrainian war, whether the war extends to other countries, including the NATO pact, making gold price dizzyingly higher or whether the Fed will lose the influence on the price of gold, etc. Thus, such fundamental geopolitical contexts significantly influence investors’ decisions to buy gold, which leads to higher prices due to increased demand, according to analysts and financial strategists of the commodity market. However, the exchange rate of the USD remains a major factor in the price of gold, with the Fed’s Federal Open Market Committee (FOMC) discussing interest rates on 3 and 4 May 2022.