Gold futures edged lower Friday, but were on track for a weekly gain, as traders eye developments around the Russia-Ukraine war and an increasingly hawkish Federal Reserve.
Gold for April delivery
fell $7.40, or 0.4%, to $1,954.80 an ounce on Comex, leaving it on track for a 1.3% weekly rise. May silver
fell 9.5 bents, or 0.4%, to $25.825 an ounce.
“The Russian war and other factors such as supply chain issues will likely boost even higher rates of inflation, thus remaining the catalyst for rising gold prices,” said Peter Cardillo, chief market economist at Spartan Capital Securities, in a note.
The Biden administration on Thursday announced more sanctions against Moscow in response to the Feb. 24 invasion of Ukraine. President Joe Biden called for kicking Russia out of the Group of 20 largest economies and warned that NATO would respond in some form if the country’s armed forces used chemical weapons in Ukraine.
Expectations the Federal Reserve will raise interest rates by 50 basis points, or half a percentage point, at its next policy meeting in May have grown this week. Fed Chairman Jerome Powell left the door open to a move larger than a quarter point in remarks Monday, a prospect echoed by some policy makers later in the week.
Treasury yields have risen sharply and the dollar has rallied as hot inflation fuels expectations the Fed will move aggressively to hike rates and otherwise tighten monetary policy. Higher bond yields can be a headwind for gold, raising the opportunity cost of holding nonyielding assets. A stronger dollar can also be a negative, making commodities priced in the unit more expensive to users of other currencies.
The rise in rates and the dollar have likely capped gold form advancing at a stronger pace, Cardillo said. But the inflation story is likely to outweigh those factors, he said, arguing that gold is likely to surpass $2,000 an ounce as inflation sparks demand from investors looking for a hedge against rising prices and geopolitical tensions drive demand for assets viewed as havens.