The Fed's plans are frightening investors in gold, forcing them to sell the asset. However, some experts suppose that it is better to buy the precious metal ahead of a possible financial crisis. Since the end of the previous week, gold prices have been falling amid the upcoming FOMC meeting. The regulator is expected to announce the first key interest rate hike since 2018. During 2021, hawkish comments provided by the US officials were exerting significant pressure on the gold market. That year, gold was trading in a very narrow range and failed to approach its pre-pandemic highs.
Early this year, gold prices were supported by geopolitical tension. In March, gold prices surged above $2,000 for the first time since August 2020. Moreover, last week, the precious metal skyrocketed to $2,043, the level that is slightly lower than the all-time high. This week, gold has been suffering losses. Yesterday, gold futures with April delivery slumped by 1.6% or $31.10 to $1,929.70. This is the lowest level last seen on March 2.
The fact is that the geopolitical factor that was supporting gold, now is of minor importance. Investors are totally focused on macroeconomic events, including the Fed's decision on the key interest rate and Jerome Powell's speech. Early this week, the Federal Reserve unveiled its intention to raise the benchmark rate by 25 basis points. The regulator also added that the QE tapering would begin in the middle of the year. Now, analysts foresee 7 rate hikes instead of 3. The fact is that a complete isolation of Russia may result in a global economic recession.
If the Fed chooses a more cautious approach, the interest rate will be raised to 1.75%-2.00% by the end of the year. At the same time, sanctions against Russia may cause a global financial shock in the next few months. In this case, the Fed may switch to more aggressive measures. Analysts are sure that any tightening of monetary policy by the US Fed will make most investors revise their priorities.
Some traders have already begun selling gold that is not bringing profit unlike bonds. However, analysts consider that it is a knee-jerk decision given the fact that the world is on the edge of a financial crisis. Gold is the only asset that may save money "The risk of a recession over the next 18 months is higher than before Russia's invasion," Bill Adams, chief economist for Comerica Bank, foresees. The US GDP may slacken to 2% on a yearly basis in the fourth quarter of 2022 compared to 5.6% in the same period in 2021.
Analyst Nicki Shields also sees a big threat of the global recession. The analyst supposes that a change in Russia's economic status, from globalism to isolationism, may lead to higher risks of hyperinflationary depression. The expert emphasizes that now there is a very disturbing trend that will not lead to anything good. The global monetary policy, the global payment system, literary everything is currently politicized and turned into a weapon David Morgan also expects a collapse of the global financial system, hyperinflation, and global deficit of goods and even starvation.
Against this background, only investments in precious metals will be able to save people's funds. Analysts are also sure that the conflict in Ukraine will hardly end soon. This, in turn, will boost gold above $2,000. Then, the above-mentioned risks will push the price higher to $2,300. This level could be reached as early as at the end of the year.
