Forex Analysis & Reviews: 07.02.2023 - Hanging on for dear life:...

07.02.2023 11:45 PM

Hanging on for dear life: the value of gold rises along with the pressure on it

Gold prices were up on Tuesday, however, it is becoming harder and harder for it to retain its impressive performance. Monday reflected positive values, which made it possible for the precious metal to overcome January's lowest values. Nevertheless, gold can't take a break because it is now under pressure due to the U.S. dollar, which continues to increase its positions, as well as the yields of the U.S. Treasury bonds. So far, market participants are not too confident in the growth that has happened, but they still use gold as a way to protect their assets, because fears about the decline in the growth rate of the world economy remain as relevant as ever.

Spot gold managed to rise 0.2% to $1,868.96 per ounce at the end of Monday trading. Take note that high fluctuations were registered throughout the trading day, and at certain moments the price fell to its January lows. At the beginning of 2023, gold fell to $1860 per troy ounce. The most active gold contract for April delivery rose 0.28%, to close at 1,884.8 dollars per ounce.

According to most analysts, the tendency to preserve assets remains predominant in the world markets. In this regard, gold will remain relevant as a safe haven for a long time. And this interest will support prices for some period. The only question is, how long this period will last. And here beliefs differ.

On the one hand, there are still considerable concerns that in the near future, the world economy may give signals that it is slowing down. However, so far these are only assumptions, which, however, have sufficient grounds. But even they are enough to support the precious metal market, including gold, which is quite capable of increasing in value.

On the other hand, the U.S. national currency is currently in a very good position. The dollar managed to reach its highest values for the last month. And this, on the contrary, negatively affects gold. The growth of the yield of 10-year U.S. Treasury notes also add fuel to the fire. As we know, this is a serious factor in the loss of interest in the precious metal, investors are more interested in risk, which means that defensive assets remain on the sidelines till new shocks.

At the end of last week, the precious metal's situation was not too favorable. Prices were rapidly going down on the background of diverging forecasts for the U.S. labor market. The signal fire of the coming week should be the speech of the U.S. central bank representatives, which includes Federal Reserve Chairman Jerome Powell. So far the outlook on monetary policy is not quite clear and looks rather vague which also plays into the hands of gold which quickly strengthened its positions.

Last week, the Fed decided to raise its key interest rate by 25 points, which eventually sent it to the limits of 4.5 to 4.75%. Now the market's expectations regarding further hikes look even more justified. So, analysts suggest that it may well reach 5.05% by the beginning of the summer of this year.

At the same time, lower interest rates are actually more preferable for the precious metal market, because this will reduce alternative costs in purchasing and owning gold.

Thus, although gold demonstrates growth, it is still limited by weighty macroeconomic factors, which may show development in the medium and long term.

Spot prices for silver dropped 0.4%, which made them fall to $22.26 per ounce. Platinum also slipped 0.2% to $971.7 per ounce. Palladium registered an even bigger drop, which amounted to 1.2%, and its price was at $1,604.09 per ounce. It fell even more during trading - by 4% at $1,556.53 per ounce, the lowest value since the end of 2022.

Regarding the future outlook for the precious metals market, it is worth noting that the palladium group has a number of additional support factors. Notably, palladium prices have been supported by supply disruptions in South Africa due to maintenance and power outages in the country. And in the short term, this could be of decisive importance in the growth of precious metals prices.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.