Further declines in gold, but the new year is still in positive territory

Due to the expected interest rate hike in the US, gold had another weak week, this time losing nearly $28 per ounce. Despite a slight rebound on Friday afternoon, the price of gold at the end of the week was $1,204.50/oz. However, it is worth noting that it is still 4.7% higher than at the beginning of January.

Monday brought gold its third consecutive session of declines, although the metal managed to rebound from Friday's low. According to the latest Fed statement, the Reserve is likely to raise interest rates at its next meeting, scheduled for March 14-15. This decision, which is almost certain, is already practically factored into current gold prices. The only surprise today may be its scope.

Standard Chartered analysts predict that we will see three rate hikes this year—in March, June, and December—and two more next year. Higher interest rates would drive up the US currency and make dollar-denominated commodities more expensive for holders of other currencies. It is therefore worth noting that if gold prices fall in USD due to the strengthening of the dollar, Polish investors could see an increase in the price of gold. Another important factor that could currently affect the price of gold is the expected decision of the European Central Bank on the future direction of its monetary policy. Some expect that Mario Draghi may be planning to reduce the money supply earlier than expected, which would have a positive impact on the euro exchange rate.

Regardless of the situation in Europe and even tensions related to North Korea's missile tests, gold prices fell last week. On Tuesday, Wednesday, and Thursday, they were dragged down by an increasingly strong dollar, and on Friday, what bullion investors feared most came to pass. Prices broke through the psychological barrier of $1,200/oz, reaching a spot price of $1,194.55, the lowest level since the end of January.  

Gold was unexpectedly rescued by US non-farm payroll data. Although it exceeded forecasts, it was not good enough to satisfy the inflated expectations of recent days. The dollar weakened against a basket of currencies, and the price of gold rebounded slightly, ending the week at $1,202.65 per ounce on the London Stock Exchange and less than $2 higher at the close across the Atlantic. In PLN terms, the week ended at PLN 4,909, a decline of 1.9%.   

Marianna Wodzińska
Head of Trading
Mennica Skarbowa S.A.