FX.co ★ Gold rises for three sessions in a row

Gold has risen for the third consecutive session. However, analysts see no sign of a further rally and no reason for optimism. What will make gold fall again?

Yesterday, bullion continued the upward trend taken at the beginning of the week. Gold thus posted its third consecutive gain.

The precious metal was supported by US labour market statistics. The number of jobs in the US private sector fell sharply in January.

The number of jobs fell by 301,000, while economists had expected an increase. The number of jobs was expected to expand by 200,000.

Experts cite a spike in the coronavirus cases as one of the reasons for the drop in jobs. The latest wave has been triggered by the omicron strain, which is considered to be more infectious than the previously known COVID-19 mutation.

Gold started to rise steadily on US jobs data. On Wednesday, gold jumped 0.5%, or $8.80. The final price was $1,810.3. The last time the asset reached this level was more than a week ago.

Also positive for the precious metal yesterday was the decline in the dollar and the yield on US 10-year government bonds. The greenback weakened by 0.5% against its main competitors. The yield fell by more than 4 points to 1.56%.

Both indexes spiked after investors appreciated comments from US Federal Reserve speakers. This week some officials allayed fears of aggressive monetary tightening by the US central bank.

In addition, increased volatility in global equity markets and the ongoing escalation of the Russia-Ukraine conflict have contributed to the demand for the safe haven asset.

Analyst Jeff Wright notes that market conditions are currently ideal for gold and other defensive assets, as the WHO recently noted an increase in deaths among those infected with COVID-19 and there is heightened geopolitical tensions around the world.

Nevertheless, the expert sees no signs of a further rally in the metal. This is due to the fact that even in such a favourable environment bullion is unable to break out of the rather narrow trading range in which it has been stranded since the beginning of the year.

The main obstacle for gold is expectation of interest rate hikes by the Fed and other major central banks, J. Wright stresses.

Many global economies are currently experiencing significant inflationary pressures. Its further intensification could force regulators to raise rates faster than previously expected.

According to the expert, this is a very negative outlook for gold. As long as there is a chance that such a situation could happen, the precious metal will continue to face resistance at $1,850.

Meanwhile, gold could already drop today after 3 days of gains. The dollar has been strengthening since Thursday morning, awaiting the Bank of England and ECB interest rate decisions. The regulators are due to announce them in the afternoon.

Analysts forecast that the European Central Bank will keep policy unchanged, while the Bank of England is likely to raise interest rates again, signalling a further unwinding of stimulus.

"Rate expectations are the primary driver of gold right now," said IG Markets analyst Kyle Rodda.

For this reason, gold's chart is predominantly red today. Gold is down by 0.2% to $1,806.80.

Scotiabank analysts believe that gold's growth will be limited not only in the near term, but also in the long term. Recently, the experts presented an updated gold price forecast for 2022. They lowered it.

Scotiabank expects an aggressive Fed rate to keep bullion in its current range for the rest of the year. This means that the average price of gold will be around $1,800. Analysts had previously referred to a price of $1,850.

The outlook for silver has also been lowered. A few months ago, Scotiabank predicted the grey metal would hit $25 through 2022, but now it says it will cost $24.50.

"With US interest rate hikes now expected to come earlier and more frequently this year, we have lowered our gold and silver price forecasts incrementally," Scotiabank senior economist Marc Desormeaux said in a report.

Notably, the markets are currently expecting five Fed rate hikes this year, the first of which will take place as early as March.

Higher interest rates will be a headwind for precious metals, but the market will be supported by rising inflation and heightened coronavirus risks.