Hawkish Fed comments push Gold at a seven week low. Should you buy now?

Gold prices inched higher on Friday but still looks like the yellow metal is set to close the week at its lowest level since March 2020. A Reuters report mentioned today, “spot gold was up 0.3% at $1,779.11 per ounce. However, prices have fallen 5.2% so far this week.”

Gold prices corrected almost 2.33% right after FOMC’s (Federal Open Market Committee) announcements on rate hikes. The US Federal Reserve sent a hawkish message on monetary policy by indicating that two rate hikes could be on the cards by the end of 2023. The statements lifted the dollar higher and dented the safe-haven metal’s appeal.

Following the Fed’s comments on bringing forward projections for the first post-pandemic interest rate hikes into 2023, the dollar jumped to a two-month high, which was on track for its best week in nearly nine months. Stronger dollar makes gold more expensive for holders of other currencies.

Inflation has emerged as a huge concern, looking at which the US Fed hinted at rate hikes in 2023. On the one hand, higher inflation is good for gold as it is considered as a hedge, on the other hand higher interest rates will reduce the appeal of the yellow metal.

Regarding the domestic markets,  Anuj Gupta, VP, Commodity and Currency Research at IIFL Securities said, ” Gold is trading at a seven-week low and has corrected 3.72% this week so far.”

The US Fed’s rate hike comments impacted the dollar and bond yields also increased sharply. Experts are saying that optimism on the recovery in the US economy may fade safe-haven demand.

“We are expecting for short term gold may trade lower, however, depreciation in rupee and higher inflation may curb the sharp fall in gold”, said Gupta.

“Short term traders can go for sell in gold at Rs 47,200 with the stop loss of Rs 47,550 for the target of Rs 46,500 levels. Prices are also correcting in physical market as there is no marriage and festival demand. We are advising people to wait for lower levels to buy,” he added.

Money9 also spoke to investment guru, Jim Rogers, who still remains bullish on commodities including gold and silver despite the correction. “Everyone must own gold and silver to protect against inflation as real assets present themselves as inflation hedge,” he said.