Commodity Market: Gold heads for second week of losses as US Dollar hits a fresh 20-year peak on hawkish Fed outlook

Spot Gold was trading within a relatively tight range on Friday and was set to register a second straight week of losses, as US Treasury yields hit their highest levels in over a decade and the US Dollar was at a fresh 20-year peak, driven by expectations of more aggressive interest rate hikes by the Federal Reserve.

Earlier this week, the Fed delivered its third consecutive 75 basis point rate hike, while bringing the federal funds target range to 3.00%-3.25%, the highest level since 2008.

“We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” Fed Chair Jerome Powell said during the press conference following the rate decision, while suggesting that ongoing increases in the target range could be appropriate.

The hawkish outlook drove the yield on benchmark 10-year US Treasuries to an 11-year high.

“I expect prices to remain choppy in the near-term, as the market has already discounted the (75 bps) rate hike, that is why we are not seeing a big fall in the prices,” Ajay Kedia, director at Kedia Commodities, was quoted as saying by Reuters.

“We see $1,650 as support and $1,720 as resistance… The expectations of further rate hike is capping gold’s upsides.”

Beside the Federal Reserve, a number of other central banks, from Indonesia to Norway, hiked interest rates this week, while stoking concerns of a global recession.

Despite that Gold is largely considered as a good hedge against inflation and economic turmoil, rising interest rates tend to increase the opportunity cost of holding the yellow metal, which pays no interest.

“The dominant drift in the minds of global investors is currently toward the realisation that the economies of Europe and the U.S. are in serious trouble,” Clifford Bennett, chief economist at ACY Securities, said.

“Should the situation begin to look more like economic collapse, gold will be catapulted to surprising levels.”

As of 9:30 GMT on Friday Spot Gold was retreating 0.61% to trade at $1,661.08 per troy ounce. Earlier this week the yellow metal slipped as low as $1,653.87 per troy ounce, which has been its weakest price level since April 9th 2020 ($1,643.84 per troy ounce).

Gold futures for delivery in December were losing 0.91% on the day to trade at $1,665.80 per troy ounce, while Silver futures for delivery in December were retreating 1.50% to trade at $19.323 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was advancing 0.92% to 112.294 on Friday. Earlier today, the DXY climbed as high as 112.336, which has been its strongest level since May 2002.