By Barani Krishnan
Investing.com -- Twenty-hours. That’s how long gold’s close of above $2,000 an ounce, the first in 19 months, lasted.
As the Russia-Ukraine war showed some de-escalation Wednesday and oil prices tumbled double-digits, providing some relief to an U.S. economy hammered by relentless inflation, gold followed lower in sympathy.
The most-active gold futures contract on New York’s Comex, April, settled down $55.10, or 2.7%, at $1,988.20 an ounce.
Just on Tuesday, April gold settled at above $2,000 the first time since August 2020.
Gold sank after crude prices fell on remarks by representatives of the United Arab Emirates and Iraq that they were willing to raise their oil output and will ask the same of the global oil producing alliance OPEC+.
U.S. stocks also rebounded, with Wall Street’s Big Tech sector, represented by the Nasdaq Composite Index, rose more than 3.% for its biggest one-day rally since March 2021.
Precious metals analysts say gold could return to $2,000, though downward pressure could also stay.
“Gold will remain a very volatile trade and will likely pivot around the $2,000 level,” said Ed Moya, analyst at online trading platform OANDA.
If U.S. stocks continue to defend the lows made during the initial shock that happened at the beginning of the Russia-Ukraine conflict, “then gold can continue to edge lower (and) may form a trading range between the $1,965 and $2,050 levels,” Moya added.
A solid favorite of safety-minded investors during the early days of the coronavirus pandemic, gold fell out of favor in early 2021 as stocks, Treasury yields and the dollar took off instead as Covid vaccine drives revived risk appetites.
From there, gold witnessed multiple failed starts and a drop to below $1,700 an ounce at one point, as doubts grew about its long-standing hedge against economic and political troubles.
Runaway inflation since the start of this year put gold back in the $2,000 driving seat, though the yellow metal still fell short of the 2020 record highs.
Comex gold reached a record high of $2,221.70 on Aug. 7, 2020. In Tuesday’s trade, it got to as far as $2,078.80.
The spot price of bullion reached an all-time high of $2,073.41 on Aug. 7, 2020. On Tuesday, bullion got to a session high of $2,070.29—just $3.12 short of the previous apex.
How gold performs rest of this week and next week could depend much on Thursday’s Consumer Price Index reading for February and the March 15-16 meeting of the Federal Reserve’s policy-making Federal Open Market Committee, or FOMC, which will decide the first pandemic-era rate hike.
The so-called CPI grew 7.5% year-on-year in January — already the highest in 40 years. The consensus for February is a 7.9% year-on-year growth — which some economists think is conservative.
Fed Chair Jerome Powell has so far indicated that he’s comfortable with a quarter percentage point rate hike at next week’s FOMC meeting. Others in the committee are clamoring for more. Powell’s comments, however, came just before oil prices hit $130 a barrel this week, so he may reconsider his still-dovish views.