(Kitco News) – Gold could continue to suffer in the short term as Federal Reserve monetary-policy tightening weighs on the market, according to analysts.
Traders are closing the book on what has been a volatile week with prices ending near a three-week low at key. August Comex gold futures are ending its second week of negative losses, last trading at $1,256.10 an ounce, down more than 1% from the previous Friday.
The silver market is also seeing a second consecutive weekly close with prices ending the week back below the key level of 17 an ounce. July Comex silver futures last traded at $16.45 an ounce, down more than 3% from last week.
Despite the weak price action, there also is still some optimism in the marketplace because of lingering doubt that the U.S. central bank can aggressively raise interest rates as the U.S. economic recovery starts to show signs of weakening momentum.
The same day the Federal Reserve raised interest rates by 25 basis points and surprised markets with a hawkish tilt, markets received economic reports that showed disappointing retail sales and inflation data. Retail sales have disappointed market expectations for four straight months, while the core Consumer Price Index fell to a two-year low.
“Because of the recent data, there is some hesitancy for markets to believe the Federal Reserve outlook,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Hansen said that he thinks the gold market is in “wait-and-see mode” as recession fears refuse to completely disappear.
Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the recently released In Gold We Trust report, agreed that recession risks are growing, citing a flattening of the short end of the yield curve as the spread between 10-year yields and two-year yields narrows. The spread is at its lowest level since August 2016.