Gold prices are heading for a second consecutive annual loss, as the Federal Reserve (the US central bank) raised interest rates, severely weakening the attractiveness of non-return bullion.
“For most of the year, gold has been under pressure from the Federal Reserve’s tightening of monetary policy. But by the end of the year, it saw some recovery, getting a lifeline on expectations that the Fed may slow the pace of rate hikes,” said Ilya Spivak, director at TestLife.
Gold is heading for an annual decline of 0.6% with the dollar emerging as a safe haven favorite amid huge interest rate hikes. The dollar index had its best annual performance since 2015, making gold too expensive for foreign exchange holders.
However, gold prices rose by about $ 200 from the lowest level in more than two years recorded in September, and are on their way to achieve their best quarterly performance since June 2020, in the hope that the US central bank slows the pace of its interest rate increases.
The Bank raised interest rates by 50 basis points in December after four consecutive increases of 75 basis points each.
Higher rates increase the opportunity cost of holding non-yielding gold.
“In 2023, gold prices will see a lot of volatility, but they won’t move much further than that, because they will be stuck between a strong dollar and lower Treasury yields,” Spivak said.
Silver and Platinum are both heading for a yearly gain, while Palladium is heading for a 4% annual decline.