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Jan. 28, 2022, 2:11 p.m. EST

Gold suffers worst week since November as prices settle at a more than 6-week low

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By Myra P. Saefong and Barbara Kollmeyer

Gold prices posted their lowest finish in more than six weeks on Friday, as the dollar climbed in a week that has helped solidify opinions among investors that the Federal Reserve is readying for an interest-rate hike in March.

“Gold prices have moved lower this week, pressured by the Fed’s clear intent to raise rates beginning in March and to begin to reduce its balance sheet shortly after it begins to increase rates,” Jeff Klearman, portfolio manager at GraniteShares, which offers the GraniteShares Gold Trust /zigman2/quotes/208448147/composite BAR +0.31% , told MarketWatch.

April gold /zigman2/quotes/210034565/delayed GC00 +0.09% , which is now the most-active futures contract, fell 0.5%, or $8.40, to settle at $1,786.60 an ounce. That was the lowest settlement since Dec. 15, according to Dow Jones Market Data.

February gold , previously the most-active contract, shed 0.5%, or $8.20, to $1,784.90 an ounce. The contract finished 2% lower to $1,793,10 on Thursday , a loss that marked its first settlement below $1,800 for a most-active contract since Jan. 10, and the weakest close since Jan. 6, according to Dow Jones Market Data.

Based on the most-active contracts, gold was down 2.5% for the week — the biggest weekly decline since November 2021.

Read: Gold investment demand down over 40% in 2021, new report finds

Meanwhile, silver for March delivery  fell nearly 1.7%, or 37 cents, to $22.301 an ounce, following a near 5% drop on Thursday. The precious metal saw an 8.3% decline for the week, the worst weekly since September 2020.

As gold fell, the U.S. dollar, as measured by the ICE U.S. Dollar Index /zigman2/quotes/210598269/delayed DXY -0.02% , was down less than 0.1%, but eying a weekly gain of 1.3%. Priced in dollars, gold tends to move inversely to the U.S. currency as a higher dollar value makes purchases of the precious metal pricier for foreign investors.

Prospects for higher U.S. interest rates have been driving up the dollar. At a news conference following the Federal Open Market Committee meeting on Wednesday , Chairman Jerome Powell didn’t reject the idea of hiking interest rates at each of its meetings in 2022, and talked of the need to be “nimble.”

Powell’s press conference Wednesday “made clear that the Fed believes the economy and labor markets are strong and is able to absorb interest rate increases to prevent sustained levels of higher-than-desired inflation,” said Klearman.  

Worries about how fast and how many interest rates hikes will be seen this year, as the central bank battles high inflation, are among factors that have been roiling global financial markets this week, triggering big swings in equities.

“Ten-year real rates have not moved much higher since the FOMC announcement and are still negative,” said Klearman. “And, interestingly, 10-year inflation expectations have not moved lower, hovering around 2.5%.  Both of these conditions are somewhat supportive of gold prices.”“Gold prices may continue to drift lower in this environment,” he said, but “the opportunity cost of holding gold is still positive (because of negative real rates), likely limiting gold price declines.” 

Some shine came off gold Friday as tensions between the West and Russia over a potential invasion by the latter into Ukraine appeared to ease somewhat. Russia’s foreign minister Sergey Lavrov said Friday that  Moscow doesn’t intend to start a war , but also “would not let our interests be rudely trampled on and ignored.”

Meanwhile, economic data released Friday showed a measure of U.S. inflation preferred by the Federal Reserve leaped 5.8% in 2021 after another sharp increase in December, underscoring why the central bank is moving to raise interest rates for the first time in four years.

Separately, U.S. consumer spending sank 0.6% in December — the first decline in 10 months. Adjusted for inflation, consumer spending shrank an even sharper 1%.

Gold prices briefly pared some of its losses immediately after data showing the the University of Michigan’s gauge of consumer sentiment fell to a final January reading of 67.2 , down from an initial reading of 68.8 and well below December’s number of 70.6. Friday’s figure represents the lowest level of consumer sentiment since November of 2011.

Among other metals, palladium’s most-active March contract  added 0.4% to $2,375.30 an ounce, marking the highest finish since September. Prices rose nearly 13% for the week. April platinum fell 1.5% to $1,006.60 an ounce, losing almost 2.8% for the week. March copper  fell 2.6% to $4.31 a pound, posting a weekly decline of 4.7%.

Read:   Palladium prices look poised to rise, with or without a Russian invasion of Ukraine

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