Gold exchange traded funds have been stuck within range for the past year, wavering on central banks’ monetary policy outlook and mixed economic data.
Over the past year, the SPDR Gold Shares (NYSEArca: GLD) dipped 1.9%, the iShares Gold Trust (IAU) fell 1.7%, and the Aberdeen Standard Gold ETF Trust (SGOL) dropped 1.7%.
Monetary policy outlook has been capping gold market gains, despite rising inflationary pressures that usually make hard assets like precious metals more attractive.
On Thursday, European Central Bank President Christine Lagarde indicated that the ECB is not ruling out an interest rate hike this year, shifting toward a tightening stance that mirrors global peers, Bloomberg reports. The ECB, though, left its rates unchanged, or in line with expectations.
The Bank of England also lifted its key interest rate on Thursday in part to contain inflationary pressures, with policy makers one vote shy of an even bigger hike.
Meanwhile, gold bullion has been hovering around $1,800 per ounce as traders weigh the outlook of an interest rate hike out of the Federal Reserve. Gold prices have weakened again on Thursday as a result of a tightening monetary policy outlook in the U.S., which would strengthen the U.S. dollar and make safe haven bonds more attractive than the non-yielding precious metal.
“The short-covering that took place last day or two is done, and markets are now focusing on the risk of more robust Fed tightening,” with a 50-basis-point hike being priced in, Bart Melek, global head of commodity strategy at TD Securities, told Bloomberg.
Looking ahead, investors will be watching for Friday’s employment report from the U.S. Labor Department for any indication about wage inflation and how the Fed could respond.
The U.S. nonfarm payrolls number due Friday is “highly likely to be rotten, but traders need to pay close attention to how equity markets will react to it,” Naeem Aslam, chief market analyst at AvaTrade, told MarketWatch. It’s “pretty much a given now that U.S. NFP number isn’t going to be great, hence we may still see a risk-on rally, which could push the gold price lower.”
However, “if equity traders begin to lose confidence, we could see a serious move for the gold price,” Aslam added, implying a rise in prices for the metal.
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