Gold futures moved higher on Tuesday, finding support as U.S. stock indexes traded lower a day ahead of the Federal Reserve’s announcement on monetary policy.
Prices for the haven metal also climbed as the International Monetary Fund cut its forecast for global economic growth this year on the aback of weaker outlooks for China and the United States.
This week, gold has drawn safe-haven bids amid wild swings in values for stocks and geopolitical tensions in Europe, where there are fears about the annexation of Ukraine by Russia.
“Investors should not forget that increased equity market volatility, if it lasts long enough, at some point triggers a capitulation of gold buyers,” wrote Alex Kuptsikevich, a senior financial analyst at FxPro, in a daily note.
Higher interest rates, however, may undercut support for gold. Investors have grown anxious about how rapidly the Fed will act to combat high inflation by raising interest rates and reducing its nearly $9 trillion balance sheet.
“It is expected for the central bank to keep rates as they are,” James Hatzigiannis, chief market strategist at Ploutus Capital Advisors, told MarketWatch. “However, we believe that the dialogue coming from the fed will be hawkish and as a result, we think gold will react negatively to that dialogue in the very short term.”
Still, if the Fed surprises markets by “deviating from the script and shows hesitancy in future rate hikes, gold prices may head up toward $1,870, said Lukman Otunuga, manager, market analysis at FXTM.
The moves for gold came as the yield for the 10-year Treasury note TMUBMUSD10Y, 1.753% was up at around 1.737%, while a gauge of the U.S. dollar, the ICE U.S. Dollar Index DXY, +0.27%, was climbing 0.3%.
Gold prices pared some of its gains in the immediate wake of U.S. consumer confidence index data showing a fall to 113.8 in January from 115.8, which came in above market expectations.
Meanwhile, gold’s sister metal silver for March delivery SIH22, +0.08% edged up by 4.5 cents, or 0.2%, lower at $23.845 an ounce, after a 2.1% drop on Monday. It trades around 2% lower week to date.
Last week, silver had become as overbought, said Peter Grant, vice president and the senior metals strategist at Zaner Metals and Tornado Precious Metals Solutions. Silver gained 6.1% last week.
“That overbought condition has now been relieved, so we’ll be looking to see if the buyers come back in” ahead of nearby price support levels, he said in his latest newsletter. “Silver is probably most worried about what the Fed might do. Rapid rate increases to tamp inflation can take the wind right out of an economic recovery’s sails.”
Among the other Comex metals, March copper HGH22, +0.58% tacked on 0.5% to $4.436 a pound.