Gold prices have been swinging for the second day in a row. The asset cannot decide on its further direction due to the lack of a strong driving factor in the market. The chaotic movement of metal seen in recent days can be compared to a tug-of-war. Bulls and bears alternately snatch a short-term advantage. To shift the balance of power, a strong driving force is needed. Unfortunately, this week's macroeconomic calendar is bereft of any important releases. Therefore, the struggle between buyers and sellers within a narrow price range will most likely continue.
Yesterday, gold prices were swinging between two factors. On the one hand, they were supported by geopolitics, namely new sanctions imposed by the United States on Russian largest and state-run lender Sberbank and the country's No. 1 private lender Alfa Bank. On the other hand, the yellow metal came under pressure from macroeconomics. On Wednesday, the US Federal Reserve released minutes from its March monetary policy meeting. This factor turned out to be more convincing for investors. As a result, gold fell even ahead of the release of the report by 0.2%, or $4.40. The asset ended trading at $1,923.10.
The markets expected the rhetoric of Fed officials to be ultra-hawkish. And the report came as no surprise to investors. The minutes showed that the central bank intends to accelerate the pace of its policy tightening by raising interest rates by 50 bp at the next meetings. In addition, the report says that as early as May, the Fed will start the process of shrinking its $9 trillion balance sheet if inflation remains high or consumer prices rise even more.
Yesterday, expectations of the Fed's more aggressive steps provoked a rise in the dollar and the 10-year government bond yields. This acted as another obstacle for higher gold prices. "Bullion escaped with very mild injuries considering the storm in bonds, with buyers defending the $1,915 region like a stronghold. The Fed repricing has not inflicted any serious damage on gold so far, although the real test will come once there's a ceasefire in Ukraine and haven demand cools off," analyst Marios Hadjikyriakos noted. Now many experts believe that the geopolitical factor that helped gold reach pandemic peaks last month will cease to dominate in the foreseeable future.
For investors, the main reference point will be macroeconomics - a more aggressive approach toward monetary policy by the Fed. Once moment X approaches, the US currency and yields will extend gains. According to strategist Lukman Otunuga, a further rise in the dollar and Treasury yields could help gold prices easily overcome the $1,900 mark. In this case, the way to $1,875 will open.
