Gold encounters first weekly loss amid rate bets, geopolitical tensions

Gold prices experienced their first weekly decline in four weeks on Friday March 15. The Gold Index lost -0.21% to trade at $2157.14 per ounce, as at the time of writing.

This shift comes after data revealed concerns on US inflation, causing investors to reconsider their expectations for a Federal Reserve interest rate cut in June.

Fed Rate Cuts: Delayed but Supportive Long-Term

The timing and pace of the Fed’s rate cuts play a key role in gold’s value. While the market currently anticipates cuts to begin in the second half of 2024, analysts believe they might start as early as July. This delay in expectations could limit the near-term price surge for gold.

Economic and Geopolitical Uncertainty

Despite the delay in rate cuts, the underlying economic and geopolitical climate remains supportive of gold. Equity markets are reaching record highs, potentially making investors more cautious about potential downturns.

Additionally, upcoming US elections could introduce policy shifts, further fueling uncertainty. This combination could trigger a risk-off scenario in equities, ultimately benefitting gold prices.

Inflation: A Double-Edged Sword

Recent inflation data exceeding expectations puts pressure on the Fed to maintain higher interest rates, which typically weakens gold. However, persistently high inflation also strengthens gold’s role as a hedge against inflation. This creates a complex situation where gold could benefit from both scenarios.

Market Forecasts Still Positive

Financial institutions like Goldman Sachs are revising their gold price forecasts upwards. They predict an average price of $2,180 per ounce for 2024, potentially reaching $2,300 by year-end.

The gold market is currently navigating conflicting forces. While delayed rate cuts and rising inflation present mixed signals, the overall economic and geopolitical environment suggests continued support for gold prices in the long run.