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Gold Prices Fell Last Week Ahead of Higher Interest Rates

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EDITOR'S NOTE: The original title of the curated piece below is “Gold subdued by bets for more Fed rate hikes.” It seems as if there have been quite a few “bets” these days in the world’s largest casino, from the speculation of a new bull market just a few months back to the soft landing bet that’s looking more like a slow crash. Now, there’s a bet that the Fed can buoy the value of the dollar by hiking rates (which would be bearish on gold). Yet, such wagers presuppose a peak in inflation, and a renewed faith in Federal Reserve policy (gold soars when people begin losing confidence in the Fed). And while citizens across the globe, particularly in China, are buying loads of gold, not only to hedge economic uncertainty but to take advantage of an incredibly low price, Americans choose to continue to “bet” in the most optimistic, versus practical, direction possible. We’ve seen similar bets before; the most recent being 2000, 2008, 2020, and today. The negative outcomes were also as huge as the wagers themselves if you recall. The big gold “bet” of 2016 was another huge event. But most investors missed that one, and for those who didn’t, it wasn’t really much of a bet.

Gold prices fell on Tuesday as investors positioned for a period of high interest rates in the United States and elsewhere.

Spot gold fell 0.83% to $1,723.49 per ounce by 4:00 pm E.T. after hitting a one-month low of $1,719.56 on Monday. U.S. gold futures settled down 0.8% at $1,735.3.

“There is continued pressure on gold from (Federal Reserve Chair) Powell’s last week comments that raised expectation of a more aggressive Fed. Gold being a non-interest bearing asset will have more competition,” said David Meger, director of metals trading at High Ridge Futures.

At last week’s Jackson Hole meet in Wyoming, the Fed and the European Central Bank struck a hawkish tone, pledging all efforts to tame high inflation even if economic growth takes a hit. Most traders now expect a 75-basis-points hike in September.

However, gold will eventually diverge and see some safe-haven flows at some point if the economy begins to slow, Meger added.

The dollar index was steady, having risen to 0.3% earlier. A stronger dollar makes bullion expensive for overseas buyers.

“A move back above $1,765 could get gold bulls excited once more but that may be easier said than done if trading over the last few sessions is anything to go by,” Craig Erlam, senior market analyst at OANDA, said in a note.

Spot silver fell 1.81% to $18.40 per ounce and platinum also dropped 1.9% to $847.50. Palladium declined 2.9% to $2,084.69.

“Industrial precious metals are vulnerable ... The recent rally in platinum group metals was running out of steam, which suggested platinum and silver were most vulnerable to additional price declines,” TD Securities wrote in a note.

Originally published on CNBC.

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