Gold deepens losses to four-week low on central banks outlook

Gold prices fell in European trading on Monday, extending losses for the fourth consecutive day and trading below the historic $5,000 per ounce level, recording a four-week low due to weak investment demand for the metal, particularly as hopes for global central banks to cut interest rates fade amid rising energy prices.

Those losses were limited by a decline in the US dollar against a basket of global currencies amid corrective moves and profit-taking at the start of a busy week of global central bank meetings, especially the Federal Reserve, which is expected to keep interest rates unchanged for the second consecutive meeting.

Price Overview

Gold prices today: gold fell more than 1.0% to $4,967.61, the lowest level since February 19, from the session opening level of $5,019.18, after reaching a high of $5,036.26.

At Friday’s settlement, gold lost 1.2%, marking its third consecutive daily loss due to the strength of the US dollar.

The precious metal gold lost 2.95% last week, marking its second consecutive weekly loss as investors focused on buying the US currency as a preferred safe-haven asset.

Global oil prices

Brent crude continues to rise for the fifth consecutive day, trading above the $100 per barrel level as the US-Israeli war against Iran enters its third week, exposing oil infrastructure to risk and keeping the Strait of Hormuz closed in what represents the largest disruption to global supplies ever.

Higher crude oil prices contribute to accelerating inflation again by raising transportation and production costs, which is expected to force global central banks to seriously consider raising interest rates.

Gold is considered a hedge against inflation, but higher interest rates make yield-bearing assets more attractive, reducing its appeal.

Global central banks

At least eight central banks, including the US Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan, will meet this week to determine interest rates in their first policy meetings since the start of the conflict in the Middle East.

Carol Kong, currency strategist at the Commonwealth Bank of Australia, said the war poses downside risks to economic growth and upside risks to inflation, meaning central bank responses will largely depend on the current context, specifically whether inflation is above, within, or below target.

US dollar

The dollar index fell 0.3% on Monday, retreating from a ten-month high of 100.54 points and heading toward its first loss in the past five sessions due to corrective activity and profit-taking.

Beyond profit-taking sales, the US currency weakened at the start of the week against a basket of global currencies as investors continue assessing developments in the Iran war, in addition to awaiting a busy week of monetary policy meetings by major central banks.

US interest rates

Amid rising oil prices, US President Donald Trump again called on Federal Reserve Chair Jerome Powell to cut interest rates.

According to the CME FedWatch tool from CME Group, markets price a 99% probability that US interest rates will remain unchanged this week, while the probability of a 25-basis-point rate cut stands at 1%.

Markets also price a 95% probability that interest rates will remain unchanged at the April meeting, while the probability of a 25-basis-point rate cut stands at 5%.

Federal Reserve

The second monetary policy meeting of the Federal Reserve this year begins tomorrow Tuesday, with decisions scheduled to be announced on Wednesday. Expectations remain stable for interest rates to remain largely unchanged for the second consecutive meeting.

Gold outlook

Christopher Wong, strategist at OCBC Bank, said gold prices remain broadly stable amid market volatility between competing macroeconomic forces. Continued safe-haven demand amid ongoing geopolitical tensions continues to support prices, although rising oil prices have revived inflation concerns.

Wong added that in the near term gold prices may remain volatile as markets reassess Federal Reserve policy and the path of real yields.

SPDR fund

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, declined on Friday by about 4.29 metric tons, marking the second consecutive daily decline and bringing the total to 1,071.56 metric tons.