Gold prices reached a one-week low following the Federal Reserve’s commitment to raising interest rates until inflation returns to its annual target of 2%. Market observers believe this pledge could lead to further downside for the precious metal.
The most-active gold futures contract on New York’s Comex for December settled down 1.4% at $1,939.60 per ounce.
The spot price of gold was at $1,920.82.
Spot gold reached a high of $1,947.80 but failed to breach the $1,950 resistance level. Sunil Kumar Dixit, Chief Technical Strategist at SKCharting.com, noted that if spot gold can establish a hold above $1,950, it may test $1,980. Conversely, if it falls below $1,924, sellers might target $1,900 and eventually $1,885.
The decline in gold was influenced by several factors:
Surging Treasury Yields: The 10-year yield on U.S. Treasuries reached its highest level since 2007, causing a steep selloff in the bond market.
Strong U.S. Dollar: The Dollar Index hit a six-month high, limiting the buying of dollar-denominated commodities by holders of other currencies.
The Federal Reserve, while leaving interest rates unchanged for September, projected another quarter-percentage point rate increase by year-end. Fed Chairman Jerome Powell emphasized their willingness to raise rates further if deemed appropriate.
Ed Moya, an analyst at OANDA, stated that “Gold’s kryptonite remains a hawkish Fed that is fueling a bond market selloff.” He also mentioned that gold might experience one more round of weakness as U.S. growth exceptionalism keeps yields trending higher.
While the peak in Treasury yields may be near, gold could struggle to stabilize until recession risks become the base case for the U.S. According to Moya, “The end of tightening is here for Europe, but higher-for-longer means investors will continue increasing their fixed income exposure.”
