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Investing.com – After the price of gold fell below $1,820 over the past few days to its lowest level since the end of December, experts at Commerzbank predicted in a recent note that the yellow metal will witness a further decline in the short term.
“We envision a possible further setback in the short term,” the bank’s analysts continued.
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This is what puts pressure on prices
The bank’s analysts said: “The noticeable rise in bond yields puts strong pressure on gold.”
“There is disappointment in gold blacks that the bank’s more restrictive policy is likely to see it leave its biggest mark in the gold market. That’s because in the US it has rallied again as a result.”
The bank’s economists made it clear that they expect it to face more headwinds and downward pressures during the coming period. As gold-traded investment funds witnessed a significant increase in outflows again during the past days, following expectations about the decisions of the US Federal Reserve, and the total outflows in the last five days of trading amounted to about 14.7 tons, which is equivalent to three tons per day.
The bank continued: “The outflows from gold ETFs were initially limited, which gave investors some hope of their recovery, but it seems that the marked increase in expectations of raising interest rates has eliminated those hopes at the present time.”
Lower expectations
In a research note released last week by commodity analysts at Commerzbank, they said they cut their mid-year gold price forecast to $1,800 an ounce, down from the previous estimate of $1,850, as rising expectations continue to weigh on the precious metal.
Commerzbank said: “Hopes of an end to the rate hike cycle in the near future in the US turned out to be premature. Therefore, market participants are likely to proceed with caution.”
However, the most significant impact on the bank’s near-term bearish outlook for gold is rising bond yields, with some Fed members saying the central bank may have to continue aggressively raising interest rates to calm inflation.
Tight comments and hot inflation data pushed the 10-year yield to a four-month high of 3.9%. Markets are starting to price in a potential 50 basis point rally from the Federal Reserve next month.
Due to changing market expectations, the bank’s analysts now see the US federal funds rate peaking at 5.5%.
Shifting interest rate expectations also sent the US dollar higher, creating another headwind for gold. While off its highs, the US Dollar Index is currently trading above 104 points, its highest level since late December.
Optimism despite negative expectations
Although the Deutsche Bank sees a decline in the near term, analysts remain optimistic that growing recession fears will eventually support gold prices by the end of the year.
“This should ensue with a lasting recovery in the second half of the year, after which the US economy is likely to see a downturn that will likely lead to renewed expectations of rate cuts. So we are sticking to our year-end forecast of $1,950.”
Besides weaker investment demand for gold, due to higher interest rates, the bank said they are also looking for weaker physical demand, particularly from India, the main consumer of gold.
Analysts pointed out that India imported only 11 tons of gold in January, down 76% compared to last year’s imports.
“There are two main reasons for the apparent decline: For one, domestic gold prices rose to a record high in January, which is likely to deter Indian buyers, who tend to be very price sensitive. On the other hand, imports are likely to have been delayed because The Indian government was expected to reduce the import tax.” “This, in fact, did not happen,” the analysts said.
Commerzbank added that it will be important to see whether demand recovers in February in India.
Dollar and gold now
It recorded a decline during the current moments, to reach levels near $ 1814 an ounce, by 0.15%.
And futures contracts for the yellow metal also rose during these moments of today’s trading, at levels near $ 1820 an ounce, by 0.2%.
While it settled in the current moments at the levels of 104.6 points.
