Gold prices witnessed a decline to their lowest level in over a month on Wednesday, driven by the prevailing perception that U.S. interest rates could remain elevated for an extended period, subsequently bolstering the dollar.
As of 1117 GMT, spot gold registered a 0.5% drop, reaching $1,892.00 per ounce, marking its lowest point since August 22. Simultaneously, U.S. gold futures also experienced a 0.5% decline, settling at $1,910.60.
The U.S. dollar retained its strength, standing tall at a ten-month high against a basket of major currencies, while Treasury yields, although showing slight retreat in European trading, remained near 16-year highs.
ANZ analyst Soni Kumari explained, “The Fed has been indicating higher interest rates for a more extended period over the past two months, but after oil prices started rallying and raising inflation risks, the market has started taking it seriously.”
Minneapolis Fed President Neel Kashkari shared his outlook on the U.S. economy, suggesting that a “soft landing” is a more probable scenario. However, he acknowledged a 40% likelihood that the Federal Reserve may need to implement significant rate hikes to combat inflation.
Higher interest rates present an increased opportunity cost for holding dollar-denominated bullion, which does not yield any interest. Consequently, this has led to the prevailing narrative of “higher-for-longer” rates overriding safe-haven flows into gold, as noted by IG market strategist Yeap Jun Rong.
Investors are eagerly awaiting the release of the U.S. personal consumption expenditures (PCE) index, which serves as the Federal Reserve’s preferred gauge of inflation. This data is scheduled for release on Friday and is expected to provide fresh insights into the direction of interest rates.
Soni Kumari elaborated on the significance of the inflation data, stating, “If the inflation number falls, we could see some support coming to gold, and the expectation of tightening monetary policy could dampen a bit.”
Reflecting the prevailing investor sentiment, holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, reached a more than four-year low.
In the silver market, prices witnessed a 0.5% decline, settling at $22.77 per ounce, reaching a 12-day low. Meanwhile, platinum faced a 0.4% drop, reaching $900.46, while palladium exhibited a 1.1% gain, reaching $1,237.26 per ounce. Palladium’s performance appeared to be on track to break a four-session losing streak.
