The gold market is again under pressure, falling below $1,850 an ounce as rising interest rate expectations drive the U.S. dollar to a 20-year high and bond yields to an 11-year high.
According to market analysts, inflation fears continue to dominate financial markets, and there are growing expectations that the Federal Reserve will have to act even more aggressively to bring down inflation.
The U.S. central bank is set to announce its monetary policy decision Wednesday. It has signaled that it is looking to raise interest rates by 50-basis points at this meeting and the one in July.
Commodity analysts at TD Securities said that aggressive rate hikes beyond the summer could keep pressure on gold in the near term. Markets are now looking for the Federal Reserve to lift interest rates by 75 basis points in September.
"The next few Fed hikes are set in stone, which limits the relevance of imminent data releases to the left tail of Fed funds pricing, but the market has aggressively challenged the right tail — bringing 75bp hikes into scope. In turn, the trading bias is still to the downside," TDS said in a note Monday.
The market has become more hawkish on interest rate hikes as investors continue to digest Friday's inflation data. Last week the U.S. Labor Department said its Consumer Price Index rose 8.6% for the year in May, hitting a new 40-year high. Inflation could remain stickier for longer than expected after average gas prices in the U.S. hit a new record high on Sunday, rising above $5 a gallon.
Analysts at TD Securities warned that in the near-term rising interest rate will be negative for gold, which is a nonyielding asset. The Canadian bank sees gold prices dropping below $1,800 an ounce in the near term.
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Just hope it holds above $1500.00 US Marathon's target for their outlook.