Gold prices showed a slight recovery from a recent five-month low on Friday, supported by some profit-taking in the dollar. Nevertheless, the metal market continues to face pressure from concerns over higher U.S. interest rates, which have contributed to a fourth consecutive week of losses.
The strong labor market data and hawkish signals emitted by the Federal Reserve have kept the market bracing itself for an imminent uptick in U.S. interest rates. This anticipation has been underscored by gold prices slipping below the significant $1,900-an-ounce level this week, which could potentially foreshadow further short-term weakness for the precious metal.
At the time of reporting, spot gold registered a 0.2% increase to reach $1,893.05 per ounce. Simultaneously, gold futures set to expire in December showed a 0.4% rise, reaching $1,922.15 per ounce. However, these increments are not enough to offset the losses of over 1% experienced by both instruments over the course of the week.
The dollar’s dip in Asian trade, marked by a 0.3% fall, provided some relief to gold. This came after the greenback had surged to over two-month highs against a basket of currencies. Despite the current decline, the dollar was still set to achieve a 0.5% gain for the week, driven by robust U.S. economic data and the hawkish stance indicated by the minutes of the Federal Reserve’s July meeting.
While the Fed has indicated just one more rate hike for the year, the expectation of elevated U.S. rates for a more extended duration bodes negatively for gold markets. This scenario raises the opportunity cost of holding non-yielding assets, a dynamic that had affected gold throughout 2022 and has continued to restrict significant gains in the metal this year.
Furthermore, the anticipation of forthcoming monetary policy insights and economic cues from the Jackson Hole Symposium in the following week continues to skew market positioning towards the dollar, casting a shadow over metal markets. Gold also grappled with pressure from a surge in U.S. Treasury yields, with the 10-year rate reaching levels last observed during the 2008 financial crisis.
