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Gold settles higher as U.S. stock market drops ahead of Fed meeting

MarketWatch
MarketWatch
 2022-01-24
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Gold futures on Monday ended higher, as brewing international tensions and a downturn in risk assets supported buying in the precious metal that is perceived as a haven.

“Gold is clearly finding favor as portfolio insurance,” with the Nasdaq Composite Index (COMP) down by around 15% from November’s record, said Adrian Ash, director of research at BullionVault.

“Gold is clearly finding favor as portfolio insurance.” — Adrian Ash, BullionVault

As gold futures settled Monday, U.S. benchmark stock indexes dropped , with the Nasdaq down roughly 1.9% and the Dow Jones Industrial Average losing 1.7%.

Against that backdrop, February gold (GCG22) (GC00) climbed $9.90, or 0.5%, to settle at $1,841.70 an ounce, following a 1.1% weekly advance for the precious metal.

Meanwhile, silver for March delivery (SIH22) fell 52 cents, or 2.1%, to end at $23.80 an ounce, after gold’s sister metal put in a weekly advance of 6.1% to end trade on Friday.

“Geopolitics is on the front burner of the marketplace at present, which is causing some anxiety among traders and investors,” said Jim Wyckoff, senior analyst at Kitco.com, in a daily note.

“Russia appears poised to invade Ukraine, despite the West’s efforts to dissuade Russian President Vladimir Putin by threatening sanctions,” he said.

The U.S. State Department over the weekend ordered the families of U.S. personnel to leave Ukraine, as concerns grow about an imminent Russian invasion , with the U.S. threatening sanctions if Moscow invades its neighbor.

Read: How a Russian invasion of Ukraine could trigger market shock waves

On top of that, the United Arab Emirates said it intercepted two ballistic missile s targeting its capital, Abu Dhabi, with Houthi rebels blamed for brewing conflict in the region.

No major damage occurred as the drones were intercepted,” said Wyckoff, but “this was the second such drone attack by the terrorists.” Houthi rebels claimed responsibility for a drone attack in the UAE a week ago .

The move for gold also comes as the Federal Reserve was slated to kick off an important gathering on Tuesday and Wednesday to lay out the framework for tightening monetary policy to combat rising inflation pressures.

Expectations are that the Fed this week will set the stage for raising interest rates, which currently stand at a range between 0% and 0.25%, as many as three times in 2022 to rein in inflation.

See: Here’s where Fed voters stand on raising interest rates and reducing $8.8 trillion asset stockpile

“Rising interest rates would typically offer a headwind to gold, but the risk of a [Federal Reserve] mistake in hiking too late is now worsened by the political impossibility of rescuing equity investors with cheap money,” BullionVault’s Ash told MarketWatch.

Lofty valuations in stocks and uncertainty about the effectiveness of central bank tactics to combat inflation also have been dragging substantially lower appetite for risk.

Gold prices rose “as risk aversion continues to grow amongst investors,” wrote Ricardo Evangelista, senior analyst at ActivTrades, in a daily research note.

Evangelista, however, said that the Fed meeting contains further downside risk for gold buyers, which could at least cap any significant moves higher, despite the bullish backdrop for precious commodities.

With inflation remaining a worry, investors are awaiting this week’s Fed meeting “with some concern, fearing a further hawkish tilt by the U.S. central bank, which, if confirmed, would be likely to create more downside for risk related assets,” he wrote.

“This conjecture looks supportive for gold, but it is also supportive of the US dollar and the inverted correlation between the two assets could cap the scope for greater gold gains as risk aversion gains traction on the markets,” the analyst said.

In the minutes immediately following U.S. data Monday from IHS Markit showing an index of service-oriented companies tumbled to an 18-month low of 50.9 from 57.6 in the final month of 2021, gold prices briefly added to earlier gains before paring back that rise.

Among other metals traded on Comex, March copper (HGH22) lost 2.5% to $4.413 a pound. April platinum (PLJ22) fell 1.4% to $1,020.30 an ounce, but March palladium (PAH22) settled at $2,141 an ounce, up 1.7%.

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