In response to the Federal Reserve’s recent signals of an impending rate hike and reduced prospects of monetary policy easing through 2024, gold prices experienced a decline on Thursday. The strengthening U.S. dollar and surging bond yields contributed to this downward trend.
As of 0518 GMT, spot gold exhibited a marginal decline of 0.1%, reaching $1,927.84 per ounce, partially recuperating from its previous losses. Meanwhile, U.S. gold futures recorded a 1% decrease, settling at $1,948.10.
On the previous day, gold reached its highest value since September 1, only to face a shift in sentiment after the Federal Reserve adjusted its economic forecasts, incorporating warnings of prolonged higher interest rates.
KCM Trade’s Chief Market Analyst, Tim Waterer, commented on the situation, stating, “In the aftermath of the FOMC event, there have been some market jitters given the interest rate outlook. As a result, gold is still finding some buyers, which is limiting the downside move, at least for the time being.”
Waterer added, “The precious metal will probably need to rely on some slowing momentum in Treasury yields in order to post gains of any significance to the upside.”
The U.S. dollar index saw a 0.4% increase, reaching its highest level since March 9. Simultaneously, two-year Treasury yields climbed to a 17-year high. This surge in yields came after the Federal Reserve decided to keep interest rates unchanged but outlined a more stringent policy path, particularly in light of their prolonged battle against inflation, which they anticipate will persist until 2026.
Higher interest rates traditionally discourage the purchase of non-interest-bearing assets like gold, especially considering gold is priced in U.S. dollars.
NAB Commodities Research noted, “Commentary signaled rates will likely stay higher for longer, which saw the market price-in reduced rate cut expectations from the Fed funds rate through 2024, which we see driving downward pressure to gold prices in the near term.”
Investors are now awaiting the Bank of England’s policy decision later in the day, which will reveal whether the bank is putting an end to a series of interest rate hikes dating back to December 2021.
In the realm of other precious metals, spot silver experienced a 0.3% decrease, settling at $23.18 per ounce. Platinum saw a 0.9% slip, reaching $919.94, while palladium dropped by 1.1% to $1,260.39.
As global economic uncertainties persist, the precious metals market remains sensitive to developments in central bank policies, inflation, and currency movements. Investors and analysts will continue to closely monitor these factors as they assess the future trajectory of gold and other precious metals.
