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Metals Stocks: Gold prices end higher, shake off weakness seen after Fed’s Powell signals bigger rate hikes could be in store

Gold futures headed higher on Monday, looking to recoup some of the losses they suffered last week as investors weigh developments in the Russia-Ukraine war and the Federal Reserve’s next moves to help stave off inflation.

“Traders are trying to assess the economic impact of Ukraine in the second quarter and further quarters,” Chintan Karnani, director of research at Insignia Consultants, told MarketWatch. “Hyperinflation and chances of stagflation are the reason for gold price trading over $1,900.” 

Gold for April delivery
GC00,
+0.17%

GCJ22,
+0.17%

on Comex was up $5.90, or 0.3%, at $1,935.20 an ounce. The yellow metal declined 2.8%, last week, marking the biggest weekly percentage decline for a most-active contract since the week ended Nov. 26, according to Dow Jones Market Data.

May silver
SIK22,
+0.93%

was up 31.8 cents, or 1.3%, at $25.405 an ounce. Silver on Friday logged a 4.1% weekly decline, snapping a six-week streak of gains.

The Fed last week delivered a widely expected quarter-point rate increase and signaled it expected to deliver a total of 10 to 11 such hikes through the end of 2023. Some Fed officials have argued for the prospect of lifting rates by a half-point increment in the future, an option that Powell hasn’t ruled out.

“For short-term traders, gold has taken a back seat as markets try to assess the impact of disrupted supply chains and the amount of supply shortfall in raw materials and food. At the same time, medium-term traders should not lose sight of the fact that the current situation will not allow central banks to act adequately,” wrote Alex Kuptsikevich, senior market analyst at FxPro.

“As a result, the supply of fiat money will increase faster than the supply of commodities. In other words, we should expect greater tolerance for higher inflation from” central banks, he said. Governments should also be expected to provide financial support to the economy, which means a boost to the money supply and a higher ratio of public debt to gross domestic product, Kuptsikevich wrote.

On Monday, Atlanta Fed President Raphael Bostic said the goal of Fed monetary policy is to get its policy rate up to neutral as quickly as possible. He sees a total of six quarter-point rate increases this year and two more in 2024 to get close to neutral.

Fed Chairman Jerome Powell is scheduled to speak at an economic conference at noon.

As long as Powell says there are more rate increases coming, anywhere between 5 to 6, “the gold price will remain under selling pressure,” said Naeem Aslam, chief market analyst at AvaTrade, in a Monday note.

Meanwhile, the Ukrainian government refused demands by Russia to surrender the southern port city of Mariupol as Russian forces continued to bombard Ukrainian cities. The demand by Russia came hours after Ukrainian authorities said Moscow’s forces bombed an art school that was sheltering about 400 people.

Stiff resistance has prevented Russian forces from making a quick takeover of the country. The Wall Street Journal reported that senior U.S. officials see signs Russia is adjusting its strategy to secure territorial objectives and use leverage to pressure Kyiv to accept neutrality between Moscow and the West.

The Ukraine war is not likely to lead to a significant impact on global financial markets, unless Russia nears triggering the nuclear option, said Karnani. “It is the fear of the use of the nuclear option by Putin which is causing a buy on crash strategy among gold traders world-wide.”

He also believes gold prices will “crash or sink, if and when there is news of the Russian central bank selling its gold to meet its local needs.”

In other Comex dealings, May copper
HGK22,
-0.77%

shed 0.8% to $4.70 a pound. April platinum
PLJ22,
+1.00%

added 0.9% to $1,045.60 an ounce and June palladium
PAM22,
+3.15%

traded at $2,545.50 an ounce, up 2.1%.

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