Gold prices rebound on Friday morning after recent declines, but Julius Baer expects limited near-term gains as US inflation worries raise the prospect of further Federal Reserve interest rate hikes.
Gold prices climbed in Dubai and international markets on Friday morning, with the precious metal gaining more than Dh2 per gram during early trading.
In Dubai, 24K gold rose to Dh503 per gram, compared with Thursday’s closing price of Dh500.75, marking an increase of Dh2.25.
Other gold varieties also recorded higher prices, with 22K trading at Dh466.90 per gram, 21K at Dh446.75 and 18K at Dh363.
Meanwhile, spot gold was quoted at $4,173 per ounce at approximately 9:30 am UAE time.
Carsten Menke, Head of Next Generation Research at Julius Baer, said stronger-than-anticipated US inflation figures released earlier in the week had heightened concerns that the Federal Reserve could introduce further interest rate increases, putting pressure on both gold and silver.
“Beyond these short-term and typically sentiment-driven moves, we believe the fundamental backdrop remains unchanged. We see limited short-term upside for gold and silver as long as the Fed remains in inflation-fighting mode,” Menke explained.
He noted that longer-term concerns surrounding rising US government debt and the increasing cost of servicing that debt could provide support for precious metal prices.
“In the longer term, growing concerns about US indebtedness and the associated interest burden should provide support. The gold/silver ratio is now back at levels we consider reasonable, prompting us to close our long position,” he added.
According to Menke, the latest US inflation report triggered a negative reaction across precious metals markets, particularly because the headline inflation figure, which includes energy costs, exceeded expectations.
The data strengthened speculation that the Federal Reserve might need to maintain a tighter monetary policy for longer.
Following the inflation announcement, gold prices dropped by as much as 2%, while silver experienced losses roughly twice as large.
Despite the sharp market reaction, Menke maintained that the underlying long-term outlook for both metals had not materially changed.
He expects limited potential for near-term price increases while the Federal Reserve remains focused on controlling inflation.
However, he also believes the risk of substantial further declines could be contained if the central bank raises interest rates less frequently than financial markets currently anticipate.
