By Barani Krishnan
Investing.com - Gold futures posted their third weekly loss while clinging to support at the mid-$1,800 level as bulls in the space tried to discern direction amid calls by Federal Reserve officials for sharper rate hikes as U.S. inflation proved stickier than thought.
Gold for April delivery on New York’s Comex settled Friday’s trading at $1850.20 an ounce, down $1.60, or 0.01%. For the week, the benchmark gold futures contract lost $12.60, or 0.7%.
The spot price of gold, more closely followed than futures by some traders, was at $1,842.15 by 15:00 ET (20:00 GMT), up $5.66, or 0.3%.
Some investors see gold as a hedge against inflation (meaning it should be bought as a store of value) and while others view it as a liability (in the event the Fed hikes rates further, boosting the dollar instead). The tug-of-war between the two sides is one reason for the yellow metal being stuck at the mid-$1,800 level.
“Gold’s vulnerability to further downside, however, should be limited as central banks appear poised to increase their bullion holdings,” said Ed Moya, analyst at online trading platform OANDA. “Global recession risks are returning and that should lead to some safe-haven flows for gold. “
But Moya also did not expect much progress immediately, saying: “We might be stuck in a range until we have clearer signs if inflation is going to continue to accelerate here.”
U.S. wholesale prices, one of the key determinants of inflation, rose their most in seven months in January, the Labor Department reported on Thursday.
That was after Tuesday’s report on consumer prices from the department that again suggested stickier-than-thought inflation.
Since the updated data on inflation emerged, Federal Reserve officials have been girding for an extended period of high interest rates, including a return to a 50-basis point hike in March, saying creeping inflation makes the 25-basis point quantum that the central bank agreed on this month untenable.
“We need to continue rate hikes until we see more progress,” Fed Governor Michelle Bowman said Friday. “Inflation is still far too high. Your guess is as good as mine as to what happens next in the economy.”
Richmond Fed President Tom Barkin concurred, saying controlling inflation would require more rate increases. “How many, we'll have to see," he added.
The comments by Bowman and Barkin came on the heels of more rate warnings earlier in the week from other officials at the central bank.
Cleveland Fed chief Loretta Mester said Thursday U.S. interest rates need to rise to above 5% and remain there an extended time in order to bring inflation down meaningfully.
St. Louis Fed President James Bullard, often viewed as the most hawkish official at the central bank, also said on Thursday he hadn’t been in favor of lowering the quantum of rate hikes — something that happened the last two months — until inflation was under better control.
Bullard added that he would support a 50-basis point hike at the Fed’s next rate decision on March 22, after the 25-basis point increase on February 1.
Former Treasury Secretary Larry Summers, in rounding up the Fed rhetoric, said there’s a risk of the “Fed hitting the brakes very, very hard”.
“A broadening in U.S. price pressures shows that the Federal Reserve’s monetary tightening to date is having a limited impact, raising the danger of policymakers having to do more than previously envisioned,” Summers added.
The Fed added 450 basis points to rates since March via eight hikes, in its bid to control runaway inflation. Rates currently stand at a peak of 4.75%.
Inflation, as measured by the Consumer Price Index, grew by an annualized rate of 6.4% in January. The Fed’s target for inflation, meanwhile, stands at 2% per year.
Rate expectations for the Fed’s March 22 policy meeting, monitored by foreign exchange traders, remained at 25 basis points on Friday, though that could change with the increasing calls for tighter policing from the central bank’s hawks.