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Gold price on track for biggest weekly loss in 15 months

Gold price and gold stocks diverge. Stock image.

Gold prices are heading for the biggest weekly drop in over a year after a regional Federal Reserve president said high inflation may call for the US central bank to tighten its monetary policy as soon as 2022.

It may be appropriate for the Fed to begin raising interest rates next year given a forecast for inflation above the US central bank’s 2% target, St. Louis Fed President James Bullard said Friday during a TV interview on CNBC.

“I put us starting in late 2022,” Bullard added, referring to interest-rate projections published Wednesday by the US central bank after a two-day policy meeting. Higher rates dampen demand for non-interest-bearing gold as an alternative asset.

Spot gold saw little change on Friday, down 0.1% to $1,770.44 per ounce by 3 p.m. ET. US gold futures dipped 0.2% to $1,770.30 per ounce.

[Click here for an interactive chart of gold prices]

Meanwhile, the Bloomberg Dollar Spot Index advanced to a more than two-month high after Bullard’s comments, hurting demand for greenback-denominated bullion.

Gold is now headed for its biggest weekly loss in 15 months, weighed down by concerns over tighter monetary policy.

Still, Fed Chair Jerome Powell has cautioned that discussions about raising interest rates would be “highly premature.” The central bank also signaled it was alive to threats of runaway price increases sparked by persistently higher-than-forecast inflation readings.

“Absent inflation expectations threatening to become unanchored —with the Fed unwilling or unable to calm things — gold will struggle to return to a bull market,” strategists from Macquarie Group wrote in a note to Bloomberg. The bank expects gold to slide to $1,600 an ounce by the end of the year.

Having broken through several key technical levels in just two days, prices will probably struggle to mount a quick recovery, said Commerzbank AG analyst Carsten Fritsch.

(With files from Bloomberg)

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