Gold bullish but set for worst performance not seen in 7 months as dollar strengthens

The yellow metal is bullish at the start of the London session as a result of worrying U.S. GDP data, which drove some investors toward the safe-haven asset.

Despite this, gold is set for its biggest monthly drop since September 2021 as the US Federal Reserve is widely expected to aggressively hike interest rates when it hands down its policy decision in the following week.

Gold futures is currently up 1.03%, trading at $1,910.81 an ounce at the time of this writing, but has dropped about 2% Month-to-Date (MtD).

What you should know

  • The U.S. GDP contracted 1.4% in the first quarter of 2022. Fed policymakers are aligned around plans to accelerate the pace of interest rate hikes in 2022. However, they are yet to reach a consensus on how fast the pace should be to avoid an economic recession.
  • As previously mentioned, the yellow metal is set for its biggest monthly percentage drop since September 2021, with the dollar index, the measure of the strength of the U.S. dollar and U.S. 10-year Treasury yields both strengthening in April to date.
  • The dollar index, which normally moves inversely to gold, is down marginally by 0.45% but steadied off the 20-year high it reached during the previous session.
  • DailyFX currency strategist Ilya Spivak told Reuters that this could alleviate some of the pressure on the Fed to tighten quite as aggressively as it has hinted, a narrative that has lingered and pressured gold in recent weeks.

Spivak further added, “That has given gold a bit of a lifeline and knocked the dollar back just a bit. I don’t expect these moves to continue though.”

City Index senior market analyst Matt Simpson said in a note, “The freight train, otherwise known as the U.S. dollar, will have to slow down at some point. And that could bode well for gold when it does.”

As regards other precious metals, silver is up 1.41%, currently trading at $23.51 an ounce. Platinum is up 1.38%, currently trading at $923.30 an ounce. Palladium is up 0.92%, currently trading at $2,244.52 an ounce, as of the time of this writing.

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