Gold Prices Plummet to Two-Week Low Amid Fed’s Inflation Battle
POLICY WIRE — Washington, USA — Gold prices experienced a significant drop on Monday, reaching their lowest point in nearly two weeks. This decline followed U.S. Federal Reserve Chair Kevin...
POLICY WIRE — Washington, USA — Gold prices experienced a significant drop on Monday, reaching their lowest point in nearly two weeks. This decline followed U.S. Federal Reserve Chair Kevin Warsh’s indication that interest rate increases might be necessary to manage inflation.
Spot gold decreased by 0.7%, settling at $44,423.84 per ounce by 0204 GMT, marking its lowest price since August 19. Friday saw a more than 3% drop in prices.
U.S. gold futures for December delivery also fell, dropping 1.3% to $4,472.90.
Tim Waterer, chief market analyst at KCM Trade, noted that gold is still recovering from the aggressive stance taken by Warsh at Jackson Hole. The market is currently assessing the change in rate expectations, with uncertainty about whether Warsh’s anti-inflation rhetoric will result in an actual rate hike in September.
Warsh stated at the Jackson Hole economic symposium in Wyoming that the Fed will need to take action if policymakers do not gain the confidence that inflation is decreasing to 2%. This is the closest he has come to admitting that rate hikes may be required to alleviate price pressures.
Markets now estimate a 57% likelihood of a Fed rate hike in September, up from 36% prior to Warsh’s comments, according to the CME FedWatch tool.
Although gold is often seen as a safeguard against inflation, it usually becomes less attractive in a rising interest rate environment due to its lack of yield.
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This week, a series of U.S. labor market reports are expected, including job openings, the ADP employment report, weekly jobless claims, and nonfarm payrolls data.
Waterer added that the nonfarm payrolls data has the potential to either prolong gold’s decline following Jackson Hole or serve as a catalyst for a short-covering rebound.
In geopolitical news, U.S. forces targeted two Iranian launchers on Iran’s Larak Island on Sunday, according to a U.S. official. This marks the first known American strikes on Iran since late July. The news caused oil prices to surge.
Other metals also saw declines. Spot silver fell 0.5% to $66.01 per ounce, platinum decreased 0.5% to $1,810.64, and palladium slipped 1.7% to $1,397.11.
Reporting by Policy-Wire (PW)