2 days ago
Gold Falls Sharply as Fed Rate-Hike Bets Rise
Gold became less valuable after investors began expecting the Federal Reserve to raise interest rates.
Higher interest rates can make gold less attractive compared with assets that pay interest.
Fed Chairman Kevin Warsh said the Fed is determined to bring inflation down to 2 percent.
Traders now see more than a 50 percent chance of a rate increase in September.
Oil prices also rose after the United States struck Iranian rocket launchers.
Higher oil prices can make inflation stronger.
Even after its drop, gold is still up about 10 percent this month.
Treasury bond-buyback plans and worries about government debt continue to support gold prices.
Gold fell more than 3% Friday, its biggest decline since early June.
Prices steadied near $4,450 an ounce as traders priced in a more than 50% chance of a September Fed rate hike.
Fed Chairman Kevin Warsh reaffirmed the central bank’s commitment to returning inflation to its 2% target.
Higher oil prices added inflation pressure after a US strike on Iranian rocket launchers.
Gold remains about 10% higher in August, supported by Treasury bond-buyback plans and concerns about debt and currency depreciation.
- Who
- Gold traders, the US Federal Reserve led by Chairman Kevin Warsh, and the US Treasury are central to the story.
- What
- Gold fell more than 3% as expectations for a US interest-rate hike increased, then steadied near $4,450 an ounce.
- Where
- The Fed’s inflation comments were made at its annual conference in Jackson Hole, Wyoming; gold was quoted in Singapore trading.
- When
- The sharp decline occurred Friday; traders are focused on the Fed’s next meeting in September.
- Why
- Warsh’s inflation pledge increased rate-hike expectations, while Treasury bond-buyback plans and debt concerns continued to support gold.
Rate-Hike Pressure
Debasement-Trade Support
Interest rates and gold
Rate-Hike Pressure
The Federal Reserve’s commitment to controlling inflation and rising expectations for a September rate hike weigh on gold.
Debasement-Trade Support
Gold may continue to benefit from concerns about sovereign debt, currency devaluation, and Treasury bond buybacks.
Policy direction
Rate-Hike Pressure
The Federal Reserve is taking a hawkish position by emphasizing its fixed 2% inflation target.
Debasement-Trade Support
The US Treasury’s bond-buyback plans are viewed as supportive of lower borrowing costs and the debasement trade.
Inflation risks
Rate-Hike Pressure
Higher oil prices following the US strike on Iranian rocket launchers could increase inflation and strengthen the case for higher rates.
Debasement-Trade Support
Persistent inflation and concerns about currency value can encourage investors to hold gold as a store of value.
Key facts
- Gold price
- Spot gold was 0.1% lower at $4,453.08 an ounce at 9:22 a.m. in Singapore.
- Recent decline
- Gold dropped more than 3% Friday, its biggest fall since early June.
- September rate odds
- Traders priced in a more than 50% chance of a Federal Reserve rate hike at its next meeting.
- Inflation target
- Kevin Warsh said the Federal Reserve’s inflation target remains fixed at 2%.
- August performance
- Gold was up around 10% in August, its biggest monthly gain since January if maintained.
- Other metals
- Silver was down 0.1% at $66.29 an ounce, platinum was little changed, and palladium fell 2%.
- Market forces
- Treasury bond-buyback plans supported concerns about sovereign debt and currency devaluation, while a more hawkish Fed pressured gold.
Sources
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