Commodity Market: Gold rebounds from a 10-week low, but remains on track for first monthly drop since January

Spot Gold rebounded from a 10-week low on Friday as the US Dollar eased from a fresh over 19-year peak.

Yet, the precious metal was on track for its first monthly drop since January, as investors bet on aggressive interest rate hikes by the Federal Reserve.

On the other hand, some analysts believe that the disappointing US GDP data may take some pressure off the central bank to tighten policy quite as aggressively as it has indicated.

The US economy unexpectedly shrank at an annualized rate of 1.4% during the first quarter amid re-surging virus infections and a drop in pandemic relief money from the government.

“That has given gold a bit of a lifeline, and knocked the dollar back just a bit. I don’t expect these moves to continue though,” Ilya Spivak, a currency strategist at DailyFX, said.

Federal Reserve officials have all voiced plans to speed up the pace of rate hikes in 2022, but they remain divided over what could be the make-or-break decision of where to stop to avoid steering the economy towards recession.

A rise in near-term interest rates as well as in Treasury yields tends to increase the opportunity cost of holding Gold, which pays no interest.

As of 8:53 GMT on Friday Spot Gold was gaining 1.04% to trade at $1,914.18 per troy ounce. Yesterday the yellow metal slipped as low as $1,872.21 per troy ounce, which has been its weakest price level since February 17th ($1,867.89 per troy ounce).

The commodity looked set to register its first monthly loss since January, while being down 1.14%.

Gold futures for delivery in June were gaining 1.20% on the day to trade at $1,913.99 per troy ounce, while Silver futures for delivery in July were up 1.52% to trade at $23.533 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging down 0.43% to 103.222 on Friday. Yesterday the DXY went up as high as 103.929, which has been its strongest level since December 2002 (107.310).

“The freight train, otherwise known as the U.S. dollar, will have to slow down at some point. And that could bode well for gold when it does,” City Index’s senior market analyst Matt Simpson wrote in an investor note.

Near-term investor interest rate expectations were little changed. According to CME’s FedWatch Tool, as of April 29th, investors saw a 96.5% chance of the Federal Reserve raising interest rates to the 0.75%-1.00% range at its policy meeting on May 3rd-4th, compared to a 97.1% chance on April 28th.