FX.co ★ Interest rate and gold price forecasts

Against the backdrop of ongoing geopolitical tensions in Ukraine, market participants are focusing on what action the Federal Reserve will take this week. Traders are waiting for a rate hike. This will be the first interest rate hike since March 2020, when the Federal Reserve cut the Fed's discount rate from zero to 25 basis points. There is a 98.3% probability that the Fed will raise interest rates from 0-25 to 25-50 basis points. With a probability of 1.7%, the rate hike will be more aggressive, up to 50-75 basis points. However, it was widely believed that the rate hike was largely accounted for by the current prices of both precious metals and US equities. US equities continued their price decline with the start of the first trading day of the week.

Bond yields rose, with the 10-year bond yield exceeding 2.12%, reaching the highest level since July 2019. This put pressure on gold.

Oil prices also fell on Monday after rising above $100 a barrel for the first time earlier in the session. Bloomberg reports that gold ETFs recorded inflows of almost 56 tonnes. This is the largest weekly inflow since March 2020. About 91 tonnes have already flowed into gold ETFs. The last time higher inflows were seen was in July 2020, shortly before the gold price reached its all-time high of $2,075. Last week, the gold price was within $5 of its all-time high.

If there is no peaceful solution to the situation in Ukraine, we can expect gold to resume rising from current levels, which reflect prices close to the top of the range triggered by the $300 rally that started last December. Although talks between Ukraine and Russia resumed in the morning, it is not certain that they will be successful.