Gold set for fifth drop on hawkish Fed’s aggressive policy stance

Bengaluru — Gold prices languished near a one-month low on Wednesday and were set for a fifth consecutive monthly drop as solid US data and hawkish Federal Reserve comments pointing to aggressive interest rates dented the non-yielding metal’s appeal.

Spot gold was flat at $1,724.20 per ounce, as of 4.04am GMT, trading close to a one-month trough hit on Monday. Bullion lost 2.3% so far in August. US gold futures fell 0.1% to $1,735.50.

“The Fed does not have intentions to significantly ease in the near term. Their focus is on inflation and what they want to do is perhaps even create some two-way risk around policy expectations where they’re giving a bit less explicit forward guidance,” said Ilya Spivak, currency strategist at DailyFX.

This contributes to gold weakness and US dollar strength, Spivak added.

The influential chief of the New York Fed said on Tuesday the US central bank will likely need to get its policy rate “somewhat above” 3.5% and keep it there through the end of 2023. Even though gold is seen as a hedge against inflation, rate hikes raise the opportunity cost of holding bullion while boosting the dollar.

Latest data showing US job openings increased in July and a bigger-than-expected rebound in consumer confidence in August bolstered expectations that the Fed will maintain its aggressive policy stance.

The dollar index ticked 0.1% lower, but was not far from a two-decade peak scaled on Monday. A number of European Central Bank (ECB) policymakers have also called for swift rate hikes ahead of next week’s policy meeting.

Indicative of investor sentiment, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund (ETF), fell 0.4% to 976.26 tonnes on Tuesday.

Spot silver dipped 0.1% to $18.48 per ounce and was down 9% for August, its biggest drop since September 2020. Platinum rose 0.8% to $853.91, but was headed for about 5% drop for the month. Palladium climbed 1.4% to $2,116.18 per ounce.

Reuters