FX.co ★ Fed's hawkish stance worsens outlook for gold

Macroeconomic and geopolitical factors have an opposite effect on the trajectory of gold. Yesterday, the first factor prevailed so that the quotes of the precious metal moved lower.

Gold opened this week with a rise of 0.6%. On Monday, it strengthened amid fears over new tough sanctions against Russia. If Europe takes even stricter measures, this will certainly accelerate inflation.

However, on Tuesday, the geopolitical factor faded into the background. Investors focused their attention on the US Federal Reserve. The hawkish comments made by one of the Fed officials put strong pressure on gold.

Yesterday, Fed Governor Lael Brainard made it clear that the central bank was ready to take aggressive action to bring down inflation. Notably, she wasn't talking only about a sharp increase in interest rates in the near future.

In particular, Lael Brainard stressed the upcoming reduction in the Fed's balance sheet. In her opinion, it is necessary to start selling the assets at the Fed's next meeting in May.

L. Brainard's statement about the need to tighten the Fed's monetary policy provoked risk aversion and a jump in the US dollar price. On April 5, the US dollar index rose to 99.60, close to its highest level in 2 years.

Optimism based on the more aggressive approach of the US regulator also supported the government bond yields. Yesterday, the indicator reached 2.55% and today it exceeded 2.6%, heading for a new 3-year high.

Against this backdrop, gold, which is an asset without interest return, is clearly losing ground. On Tuesday, the price fell by 0.3%, or $6.50, to close the day at $1,927.50 per troy ounce.

On Wednesday morning, investors continue to sell gold. At the time of publication, the price of the yellow asset fell by 0.31%, or $6, to $1,921.5.

Now, the market is digesting yesterday's comments by L. Brainard while waiting for the Fed minutes for March, which will be published today. This is another factor limiting the growth of the precious metal.

Analysts warn that in the short term, bearish sentiment will prevail in the gold market. The quote is expected to decline to almost $1,900 per ounce.

At the same time, experts underscore high volatility of the asset in the next few days.

Such factors as geopolitics, new sanctions against Russia, and high inflationary risks may provide support to the precious metal.