Gold is headed for its third consecutive weekly loss, trading below $4,200 an ounce in early activity after a 1.1% decline on Thursday. The yellow metal is set for a moderate weekly drop due to the hawkish stance of new Federal Reserve Chairman Kevin Warsh, which has fueled speculation about tighter monetary policy this year. This outweighs the positive impact of an interim peace deal signed between the US and Iran, a development typically supportive of gold prices.
Financial Post also indicates that bullion fell as much as 1.3% as the dollar strengthened. The interim peace deal, which is expected to reopen the Strait of Hormuz and ease inflation risks, ordinarily would reduce the need for higher interest rates. However, the hawkish tone from Fed Chair Kevin Warsh, who vowed to restore price stability and signaled support for interest rate hikes, has shifted market focus. Gold, being a non-interest-bearing asset, becomes less attractive when interest rates are higher or expected to rise.
Analysts from Goldman Sachs have responded by lowering their gold price forecast for December to $4,900 an ounce, down from a previous estimate of $5,400. This revision is attributed to lower demand for rate-sensitive gold exchange-traded funds and reduced concerns about central bank independence following Warsh's surprisingly hawkish initial Fed meeting. Ryan McKay, senior commodity strategist at TD Securities, noted that the Fed's hawkish tilt and the prospects of higher rates outweigh any relief from the US-Iran agreement for gold and other precious metals, likely pushing gold into net-short positioning.
