Gold Market Weakens as Dollar Gains on Rate Hike Expectations
Gold prices fell more than 1 percent to a near one-week low on Wednesday as hawkish signals from Federal Reserve policymakers strengthened expectations for further rate hikes and pushed the US dollar to two-month highs, weighing on the metal.
Spot gold dropped 1.7 percent to 4,282.53 dollars an ounce, after touching its lowest level since September 17 earlier in the session, while US gold futures for December settled 1.3 percent lower at 4,318.40 dollars. Peter Grant, vice president and senior metals strategist at Zaner Metals, said gold is being pressured by the stronger dollar, noting that Fed commentary since last week’s policy meeting has been fairly hawkish, with markets now pricing in at least one more rate hike before year-end.
The dollar’s climb to a two-month high made gold more expensive for buyers holding other currencies, adding further pressure. Federal Reserve officials struck a notably hawkish tone this week, with Chicago Fed President Austan Goolsbee suggesting the central bank may need to treat the current energy shock as a source of persistent inflation rather than assume it will fade on its own. Richmond Fed President Tom Barkin and Boston Fed President Susan Collins both voiced support for last week’s rate hike given ongoing inflation concerns, echoing similar worries expressed by other Fed officials in recent days.
While gold is traditionally viewed as a hedge against inflation, rising interest rates tend to dampen its appeal relative to interest-bearing assets. Traders currently see a 77 percent chance of a rate hike in October and a 95 percent chance of one in December, according to the CME FedWatch Tool.
Adding to the day’s volatility, President Donald Trump warned Tuesday that he could annihilate Iran, sending Brent crude futures above 100 dollars a barrel, though prices held near a two-week low. Gold has traded in something close to an inverse relationship with oil since the US-Israeli war on Iran began in late February, weighed down by fears that rising energy prices would fuel inflation and prompt tighter monetary policy from central banks.
Other metals also declined. Spot silver fell 3.9 percent to 64.45 dollars an ounce, platinum dropped 5 percent to 1,741.83 dollars, and palladium slipped 3.7 percent to 1,259.24 dollars.
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