Gold prices experienced a decline on Thursday, driven by the strengthening U.S. dollar and rising bond yields. This shift in the market followed the Federal Reserve’s recent announcement, which indicated not only another rate hike this year but also a more stringent monetary policy through 2024, a change from previous expectations.
Here are the key fundamentals of the market:
Spot Gold Decline: Spot gold witnessed a 0.3% decrease, settling at $1,924.68 per ounce as of 0059 GMT. Simultaneously, U.S. gold futures experienced a more significant drop, plummeting by 1.1% to $1,944.90.
Fed‘s Impact: Spot gold prices reached their highest point since September 1st before the U.S. Federal Reserve modified its economic projections to include warnings of a prolonged period of higher interest rates.
Stronger U.S. Dollar: The U.S. dollar index gained 0.4%, reaching its highest level since March 9th. Alongside this, two-year Treasury yields surged to a 17-year high, reflecting the market’s reaction to the Fed’s announcement. Although the Fed maintained its interest rates on Wednesday, it adopted a more hawkish stance regarding its monetary policy.
Interest Rates and Gold: Historically, higher interest rates have discouraged investments in non-interest-paying assets like gold, primarily because gold is priced in U.S. dollars. As interest rates rise, the opportunity cost of holding gold increases.
Fed’s Strategy: The Federal Reserve outlined a more stringent monetary policy to combat inflation, which they now anticipate lasting until 2026. However, the Fed believes it can manage inflation without causing significant harm to the economy or leading to substantial job losses.
Bank of England Decision: The Bank of England was expected to announce whether it would halt a series of interest rate hikes initiated in December 2021. This decision came after signs emerged suggesting progress in addressing Britain’s high inflation issue.
SPDR Gold Trust: The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, reported a 0.1% decrease in holdings, which stood at 878.25 metric tons on Wednesday.
Russia’s Gold Reserves: Russia’s central bank announced that its gold reserves amounted to 75.0 million troy ounces at the beginning of September.
Other Precious Metals: Spot silver experienced a 0.7% decline, reaching $23.07 per ounce. Platinum followed suit, slipping by 1.1% to $918.79, while palladium saw a more significant drop of 1.8%, settling at $1,251.21 per ounce.
Upcoming Data and Events (GMT):
0645 France Business Climate Manufacturing and Overall (September)
1100 UK BOE Bank Rate (September)
1230 US Initial Jobless Claims (Weekly)
1230 US Philly Fed Business Index (September)
1400 EU Consumer Confidence Flash (September)
1400 US Existing Home Sales (August)
In summary, gold prices retreated as a result of the Federal Reserve’s announcement of a more hawkish stance on monetary policy. The strengthening U.S. dollar and rising bond yields further compounded the decline. Investors are closely monitoring these developments and upcoming data releases to gauge the future direction of precious metal markets.
