Gold prices witnessed on Friday a decline, moving further away from the record highs reached earlier in the week. This drop was influenced by a significant increase in the value of the U.S. dollar, which was triggered by a surprise interest rate cut by the Swiss National Bank (SNB). The metal markets felt the pressure from this development.
At the start of trading on Friday, 22 March, the price of gold in the UAE markets experienced a decrease of over AED2 per gram. The 24K variant of gold was being traded at AED263 per gram in the morning, compared to AED265.25 at the previous day’s market closing. Likewise, the prices of 22K, 21K, and 18K gold also opened lower at AED243.50, AED235.75, and AED202 per gram, respectively.
After the Federal Reserve maintained its projection of at least three interest rate cuts in 2024, the price of gold surged to record highs above $2,200 per ounce. However, this upward momentum was short-lived as the dollar made a strong recovery due to dovish signals from other major central banks.
Yesterday, the Bank of England (BoE) decided to keep interest rates unchanged at 5.25 percent for the fifth consecutive time. However, the bank acknowledges that the possibility of a rate cut is now “moving in the right direction.”
At 00:28 ET (04:28 GMT), spot gold declined by 0.4 percent to $2,173.62 per ounce, while gold futures expiring in April fell by nearly 0.5 percent to $2,174.90 per ounce.
Gold under pressure
The primary factor contributing to the decline in gold prices was the significant increase in the value of the U.S. dollar. The dollar index reached a three-week high, surpassing the 104 level. The unexpected rate cut by the Swiss National Bank, combined with dovish signals from the Bank of England, resulted in the U.S. dollar becoming the only major high-yielding, low-risk currency. Additionally, positive signs of resilience in the U.S. economy, such as an optimistic outlook from the Federal Reserve and strong purchasing managers index data, influenced traders to favor the dollar.
This situation had a negative impact on the metal markets since investing in precious metals like gold does not offer direct yields. Consequently, the strength of the dollar is expected to limit significant upward movement in the price of gold, at least until the Federal Reserve begins reducing interest rates later in the year. The CME Fedwatch tool suggests that the central bank is likely to cut rates by 25 basis points in June.
Analysts from Citi anticipate that lowering interest rates later this year will benefit the price of gold, setting a year-end price target of $2,300 per ounce for the yellow metal.
Other precious metals
Other precious metals also experienced a decline, surrendering a substantial portion of their gains made after the Federal Reserve’s announcement. Platinum futures fell by 0.7 percent to $905.10 per ounce, while silver futures slid by 1 percent to $24.758 per ounce.
Copper retreats from 11-month highs
On the London Metal Exchange, three-month copper futures declined by 1 percent to $8,882.0 per ton, while one-month U.S. copper futures dropped by 1.2 percent to $4.0175 per pound. Both contracts experienced a significant decrease from the 11-month highs reached earlier in the week.
The decline in copper prices was also influenced by deteriorating sentiment towards China. On Friday, the country’s stock markets faced steep declines due to concerns regarding slowing economic growth and the possibility of additional U.S. sanctions.
Despite these factors, the outlook for copper markets remained tight, particularly as recent reports indicated that major Chinese copper refiners planned to reduce output during the year.
For more news on markets, click here.
