As the US dollar index rebounded, gold prices slightly declined. Previously, gold gained support from the inflation theme brewing in recent weeks and the weakening of the US dollar. The US dollar underperformed on Tuesday as other currencies of central banks around the world were on the brink of an upward trend. The changes in the foreign exchange market have weakened the attractiveness of the US dollar, which was originally due to earlier expectations of interest rate hikes.

HSBC analysts say that gold prices may face difficulties as central banks around the world are about to change their monetary policies. More and more people expect the Federal Reserve to reduce its bond purchases by the end of this year.

Analysts at HSBC stated in a report on Tuesday: Global monetary and fiscal policies no longer fully support the US or global gold. With the end of the era of ultra loose monetary policy and the withdrawal of fiscal stimulus measures, gold investment is declining. We still believe that due to the slowdown in global economic growth and the normalization of the Federal Reserve, the US dollar is gradually transitioning to a stronger path. The gradual strengthening of the US dollar may be slightly detrimental to gold

HSBC pointed out that if inflationary pressure ultimately drives up bond yields, rising consumer prices will not have a significant impact on gold. The 10-year treasury bond bond yield is currently close to a four month high of 1.62%.

Not only has bond yields increased, but more and more people are anticipating that the Federal Reserve may start tightening interest rates before the second half of 2022. The Federal Observer Tool of the Chicago Mercantile Exchange shows that the market expects a probability of interest rate hikes in June next year to exceed 47%.

However, in a report released last week, commodities analysts at Dow Securities were optimistic that April gold futures would rise to $1850 to $2000 per ounce. The bank expects gold prices to rise significantly within four months. Analysts at Dao Ming Securities said, "The market's pricing for the Fed's interest rate hike is too strong. This indicates that gold is an ideal hedge against the increasing trend of stagflation, and as expectations of Fed rate hikes ease, the reasons for holding gold are becoming increasingly persuasive

At present, the gold market seems to be stagnant, and weak investment demand cannot continue to push gold prices above $1800 per ounce. Dao Ming Securities pointed out that the entire precious metal industry has been impacted as the Federal Reserve seeks to tighten monetary policy and reduce monthly bond purchases by the end of the year. Analysts said, "Speculators have reduced their holdings in response to the increasing purchases by the central bank, reflecting the market's high attention to the expectation of the Federal Reserve tightening policy and ignoring the upcoming risks

According to relevant data, so far this year, investors have sold over 190 tons of gold from the world's largest gold ETF. One of the reasons why rising inflationary pressures have failed to support gold prices is that inflation has intensified expectations that the Federal Reserve will raise interest rates earlier than expected. However, analysts say that gold remains attractive as rising inflation also increases the threat of stagflation.

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