Fed rate hike headwinds continue to accumulate, geopolitical risks may not be enough to support gold higher Provider FX678

On Tuesday (February 1), in the Asian session, spot gold held on to the gains of the previous trading day, but failed to break further and traded below 1800. Geopolitical risks have created some support for gold in the near term. Gold, however, will still face a challenging year as the Federal Reserve seeks to aggressively tighten monetary policy to keep inflation in check, one market analyst said.

(Spot gold daily chart)

Analysts see Fed tightening pressure to pull gold down again

While rising geopolitical tensions between the U.S. and Russia continue to simmer, the gold market cannot ignore the long-term fundamental environment.

“Gold may be higher in the short term, but geopolitical uncertainty is not a sustainable long-term driver because it will eventually be resolved in some way or form, and at some point fundamental pressure will be,” Haworth said. reappear.”

Meanwhile, gold remains below $1,800 an ounce. Gold fell 3% last week as the Federal Reserve said it expects to raise interest rates soon. The Fed also set the stage to begin shrinking its balance sheet after raising rates. Meanwhile, Federal Reserve Chairman Jerome Powell said the labor market is strong enough to withstand higher interest rates.

The economy is still in the recovery stage, but inflation and the epidemic may bring recession risks

Markets are now pricing in five more rate hikes by the Fed this year. Haworth pointed out that although current expectations are a bit too hawkish, there is no doubt that the Fed will tighten monetary policy. He said:“We’re likely to see three or four rate hikes this year and maybe even some quantitative tightening. The challenge is that neither of those things is actually a good thing for gold prices.”

Gold is not the only asset that will struggle in 2022 as investors continue to navigate a volatile financial market and economic environment. Haworth noted that there are various expectations for 2022 and that activity will continue to be affected by the current outbreak.

Inflation will remain an issue, Haworth added,Because there is still a lot of uncertainty surrounding global supply chains. He is relatively neutral on economic growth this year.As for how investors can protect themselves this year, he said he is focusing on value companies with healthy cash flow and strong purchasing power to guard against inflation.

“We’re trying to get our portfolios in a position where our asset class can help us in an inflationary environment and provide some protection and insurance to our clients,” Haworth said. “You need to focus on the last couple of years,” Haworth said. Market areas that have been shunned for years, back to areas that reopen cyclically.”

Still, Haworth believes that gold could still play a role in some portfolios. “It’s not something we’re investing in our portfolios today, but it’s something to consider,” he said. “Investors need to think about whether you’re more concerned about a downturn, in which you need to preserve value, or are you more concerned about a recovery? I remain optimistic. We believe the economy is still in the recovery phase, but also recognize that recession risks are not out of the question.”

Gold prices held steady on Tuesday (February 1), trading below the 1800 mark. Trading was relatively light as the Chinese New Year holiday and investors waited for economic data to guide inflation levels and the Fed’s next move. During the day, many countries in the euro zone and the United Kingdom and the United States will announce their final PMI values ​​for January. At the same time, this week’s non-farm payrolls data in the United States has also been closely watched by investors.

At 10:45 on February 1st, Beijing time, spot gold was reported at $1,897.99 per ounce.