Gold prices experienced a rebound on Monday, as the dollar scaled back its initial gains spurred by predictions that the unexpected output cuts by OPEC+ could lead to increased global energy prices, prompting central banks to raise interest rates.
By 1206 GMT, spot gold had increased by 0.5% to $1,977.43 per ounce, while U.S. gold futures rose 0.4% to $1,994.50. Earlier in the session, gold had reached a one-week low of $1,949.54.
Rhona O'Connell, an analyst at StoneX, attributed the low to a "knee jerk reaction" to the dollar's initial surge, which also sparked some bargain hunting in the $1,960-$1,965 range. She added, "You'd have thought in the longer term, it might be supportive because OPEC has introduced some uncertainties or fresh uncertainties into the marketplace."
The dollar's initial gains were tempered, making gold more affordable for traders using other currencies, as investors concentrated on the divergent central bank policies and the effects of oil production cuts on the inflation outlook.
Although gold has traditionally served as a hedge against inflation, the prospect of higher interest rates to curb escalating price pressures lessens the appeal of the non-interest-bearing asset.
According to CME's Fedwatch tool, the market currently has a 59.3% probability of the Federal Reserve implementing a quarter-point rate hike in May. Additionally, there is a 66% likelihood of the Bank of England raising rates by another 25 basis points in the same month.
Matt Simpson, senior market analyst at City Index, stated, "Gold is now vulnerable to a move down to $1,900, given the potential for a higher terminal Fed rate that markets are currently pricing in." Last quarter, gold rose nearly 8% as global banking turmoil fueled speculation that the Fed would slow down its rate hikes.
Silver dipped 0.3% to $24.01 per ounce, platinum also decreased by 0.3% to $988.60, while palladium advanced 0.7% to $1,470.72. As the global economic landscape evolves, investors will continue to closely monitor central bank policies, inflation indicators, and market reactions to OPEC+'s output cuts, which could all impact the precious metals market.
