Gold prices sank below $1,700 on Wednesday afternoon as investors continued to shed holdings of gold-backed exchange-traded funds ahead of key central bank meetings over the next week, which may result in more aggressive interest rate hikes.
Spot gold fell 0.9% to $1,696.71 per ounce by 5:10 p.m. ET, a new 11-month low, after holding steady earlier in the session. US gold futures shrank 1.0% to $1,694.30 per ounce in New York.
[Click here for an interactive chart of gold prices]
Bullion has been hovering in a narrow trading range since late last week, with the US dollar index also retreating for three straight sessions through Tuesday, a sign of waning haven demand. However, the gauge for greenback has since then recovered, pulling investor demand away from the precious metal.
Holdings in gold-backed ETFs have now dropped for 15 days, the longest stretch since March 2021, according to initial data compiled by Bloomberg.
“We don’t expect a sustained improvement in market sentiment until investors get greater clarity on the outlook for the economy, central bank policy and political risks,” UBS chief investment officer Mark Haefele said in an earlier Bloomberg note. “Uncertainty in all of these areas remains elevated, in our view.”
Traders are currently awaiting on key central bank decisions to see how policy makers will address soaring inflation across the globe.
Bloomberg sources speculate that the European Central Bank may consider raising interest rates on Thursday by double the quarter-point it previously outlined. The US Federal Reserve, meanwhile, is likely to hike rates by another three-quarters of a percentage point at its meeting next week, according to CNBC reports.
“There’s actually scope for a relief rally coming up to the July FOMC meeting where we can see a little bit of a bounce and perhaps prices heading back toward $1,750 in the near term,” Suki Cooper, a precious metals analyst at Standard Chartered Plc, said in a Bloomberg Television interview, referring to the policy-setting Federal Open Market Committee.
For gold to actually rally, ETF outflows would have to stabilize, and a lot of the downside risk has to be priced in by markets, Cooper added.
In a separate Reuters report, TD Securities commodity strategist Daniel Ghali said: “Gold is trading in a tight range, but it is trading heavy. Fed speakers have pushed back the notion of 100 bps hike, but gold still hasn’t managed to rally because there are still traders who are using the chance to sell before prices fall further.”
“The conflict in Ukraine catalyzed a massive amount of inflows into gold ETFs earlier in the year, but the relevance of that has faded. The hawkish central bank regime is reducing appetite for gold purchases,” Ghali added.
(With files from Bloomberg and Reuters)