By Gold settled Thursday at the lowest price in more than two years, pressured by strength in the U.S. dollar and a rise in Treasury yields as investors expect more interest rate hikes from the Federal Reserve.
Price action
Gold futures
GCZ22,
-2.16%
for December delivery fell $31.80, or 1.9%, to settle at $1,677.30 an ounce on Comex. Prices for the most-active contract marked their lowest settlement since April 3, 2020 and largest one-day percentage loss since July 5 of this year, according to Dow Jones Market Data.
December silver
SIZ22,
-2.19%
declined 30 cents, or 1.5%, to $19.269 per ounce.
Palladium
PAZ22,
-1.69%
for December delivery fell $26.60, or 1.2%, to $2,146.10 per ounce, while platinum prices
PLV22,
-0.38%
for October delivery edged down by $1.70, or 0.2%, to $903.70 per ounce.
December copper
HGZ22,
-1.48%
shed 3 cents, or 0.8%, to $3.49 per pound.
What’s happening
Gold has suffered in the wake of Tuesday’s U.S. August consumer-price index reading as the dollar strengthens for the week and 2-year Treasury yields
TMUBMUSD02Y,
3.864%
touched their highest levels since 2007.
The consumer-price index on Tuesday showed a 0.1% rise in August, though economists polled by The Wall Street Journal forecast a 0.1% decline.
The data reinforced expectations that the Federal Reserve is going to raise interest rates by at least 75 basis points next week and “proceed with further aggressive hikes until inflation comes back under control,” said Fawad Razaqzada, market analyst at City Index and FOREX.com, in a market update. “Consequently, the sellers have stepped up the pressure, driving the precious metal below $1,700 again.”
The Fed is expected to deliver its next interest-rate hike on Wednesday, with interest-rate futures pricing in the probability of a 75 basis point hike.
Momentum and sentiment is also “very bearish” on expectations of a continued aggressive pace of Fed interest rate hikes at the central bank’s meetings in November and December, said Chintan Karnani, director of research at Insignia Consultants.
The ICE U.S. Dollar Index
DXY,
+0.10%,
a gauge of the dollar’s strength against a basket of rivals, was little changed at 109.66, but trades 0.6% higher week to date. Strength in the dollar can put pressure on dollar-denominated commodities such as gold.
Read: Silver is outperforming gold this month, and that’s just the start
Gold has historically been seen as a hedge against inflation, but “it has proved to be a poor hedge against rising prices, with investors disliking the metal because of rising bond yields and a very strong U.S. dollar,” said Razaqzada.
“In an environment of rising interest rates around the world, investors have instead chosen to sell assets that have little or no yield, such as low-div stocks and metals,” he said. “The latter also costs money to store, making it even less appealing from an investment point of view in the current climate.”
Looking ahead, past next week’s Fed meeting, there will be “position squaring and rebuilding for the fourth quarter,” said Karnani, adding that gold investment demand data should be closely watched.
The third quarter saw outflows from gold exchange-traded funds, he said. “This has to be reversed and turned to positive and there should be a “rising trend in long positions” in Comex December and February gold futures for gold prices to float over $1,800, he said.
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