Gold price weakened from its recent high as safe-haven demand driven by concerns over Ukraine was countered by strength in the U.S. dollar and Treasury yields.

The U.S. central bank signaled interest rate hikes starting in March and a shift away from pandemic-era economic support measures.

U.S. consumer prices in December had the largest annual rise in nearly four decades, and the U.S. policymakers finally concluded that price pressures were not just transitory.

Gold is generally seen as an inflationary hedge, but the price of this precious metal is highly sensitive to rising U.S. interest rates.

Morgan Stanley expects that the Fed would set out a more aggressive tone to fight inflation after the March rate hike while higher yields and interest rates dent the appeal of bullion by raising the opportunity cost of holding non-yielding gold.

The prospect of interest rate hikes positively influenced the U.S. dollar, and the appreciation of the U.S. dollar in the last several days had a negative influence on gold. Brian Lan, managing director at dealer GoldSilver Central, added:

Fed Chairman Jerome Powell struck a hawkish tone on Wednesday, flagging a rate increase in March and saying there was room for further policy tightening without hurting employment. This is why we see the bump up in Treasury bills, and of course, people are selling gold.

Last week, the price of gold was supported by weakness in equities markets because gold is considered a safe-haven asset and investors look for safer places to invest their money.

Comments from Fed Chair Jerome Powell hit both gold and equities, but according to Philip Streible, chief market strategist at Blue Line Futures, gold could find support again if Russia-Ukraine tensions escalate.

On the other side, the battle against the coronavirus is still not over, and the U.S. continues to fight with high numbers of new daily infections, leading to staffing issues across industries.

Investors have seen that the virus still has the ability to disrupt business, while these problems may complicate the FED decision on monetary policy in 2022.

$1700 represents strong support

Gold prices weakened more than 1% this Thursday, which is a continuation of Wednesday’s selloff, and if the price falls below $1700 support, it would be a firm “strong” signal.

Data source: tradingview.com

The next target could be at $1650; still, the price of gold could find support again if Russia-Ukraine tensions escalate.

The important resistance level stands at $1850, and if the price jumps above this level, it would be a signal to trade gold, and we have the open way to $1900. 

Summary

Gold prices weakened more than 1% this Thursday, which is a continuation of Wednesday’s selloff as markets further digested Fed Chair Jerome Powell’s comments on raising rates. The prospect of interest rate hikes positively influenced the U.S. dollar, but gold could find support again if Russia-Ukraine tensions escalate.

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