The precious metal has already seen a lot of volatility in 2022, rallying to a near record in March after Russia’s invasion of Ukraine, only to lose more than 15% as the Federal Reserve tightened monetary policy and the US currency soared on the back of rising interest rates, haven demand and recession fears.
One gauge of the greenback hit an all-time high on July 14, and bullion priced in dollars fell to its weakest intraday level in more than 15 months on Thursday, with the inverse correlation between the two assets around the strongest level since September.
While real rates can be a strong driver of gold at times, that’s not the case now, said John LaForge, head of real asset strategy at the Wells Fargo Investment Institute.
Gold has lost more than $100 in July alone as traders increased bets on a full percentage-point increase in US rates after the consumer price index in June came in with a scorching 9.1% annual gain. That’s been dialed back as policy makers expressed reluctance about such a big move.
The Fed is now expected to hike by 75 basis points for a second straight month when it meets later in July. The rest of the tightening cycle will depend on prevailing economic data and any evidence that prices are stabilizing.
Both Citigroup and UBS see prices reaching a trough this year before rallying in 2023. A drop to the $1,600 level is likely to be short-lived and attractive for investors, Citigroup analysts including Aakash Doshi said in a July 12 note.
Others remain confident in the metal’s role in a portfolio for diversification benefits. “Gold has done better than US cash holdings in real terms during this period of volatility, and even better in other currencies.” said Evy Hambro, global head of thematic and sector-based investing at BlackRock Inc.