FX.co ★ Gold slumps on Tuesday and could continue moving in a wide range

Precious metals fell sharply on Tuesday, then continued to decline this morning. Gold dipped from 1977.00 to 1940.00 even though investors were expecting a more aggressive pace of interest rate hikes from the Fed.

The first reason is the high demand for dollar, which persists despite the possible rate hikes at the upcoming monetary policy meetings. In addition, the Fed is actively reducing its balance sheet, limiting measures to support the economy.

The second reason is probably some of the statements by Fed members recently. Those make it clear that they are worried that the US economy will plunge into recession if rates are raised aggressively. So if the Fed really increases rates by 0.25% like before, there may be a rebound in the stock market and a simultaneous decrease in gold prices.

The third and final reason is the position of the Central Bank of China in relation to the level of interest rates on one-year and five-year loans, which seems to be leading to a contraction in interest in gold in Asia. Contrary to expectations, China kept its benchmark lending rates for corporate and private loans at April levels as Beijing became more cautious in its easing measures to help the slowing economy.

All in all, gold prices fell because of the growth of interest rates and dollar, as well as the position of the Central Bank of China. But the decline is limited because the threat of recession forces many market players to buy safe assets. The ongoing conflict in Ukraine affects the price movements as well.

The current state of affairs, characterized by high uncertainty in the markets, will continue, which means that gold will remain near historical highs, but with no prospect for further growth.