Gold prices have fallen in the global market amidst fears that the US central bank, the Federal Reserve, will raise interest rates. On Tuesday (November 10), gold prices in the spot market fell by 1.5 percent at one point, reaching $4,078.53 per ounce. The price of gold came under pressure after a Fed official’s statement in favor of a hawkish monetary policy, which led to an increase in the short-term interest rates of the dollar and US Treasury bonds.
According to a Reuters report, market data published before Tuesday evening Bangladesh time showed that gold prices in the spot market fell by 1.5 percent at 10:25 AM GMT. Concurrently, the price of gold futures for December delivery in the US decreased by 0.7 percent, settling at $4,086.30 per ounce.
Federal Reserve Governor Christopher Waller stated that even if inflation subsides, the central bank should raise interest rates next month. Furthermore, if the inflation situation deteriorates, a half-percentage-point rate hike should also be considered. Following his remarks, market expectations for higher interest rates intensified.
According to data from CME’s FedWatch tool, market participants estimated a 99 percent probability of a Fed interest rate hike in December after Waller’s statement. When interest rates rise, the opportunity cost of holding gold, a non-yielding asset, increases. This reduces gold’s appeal to investors.
Earlier, gold prices had slightly declined at the beginning of Tuesday’s trading due to profit-taking. After gaining more than 1 percent on the previous trading day, the price of gold in the spot market fell by 0.4 percent to $4,124.42 per ounce around 12:00 PM Bangladesh time. At that time, futures prices for December delivery rose by 0.5 percent to $4,133.
Kyle Rodda, a senior financial market analyst at Capital.com, stated at the time that the price drop was due to investors taking profits after gold reached its highest level in the US market the previous day. According to him, if the conflict in the Middle East does not escalate further and crude oil prices continue to fall, it could have a positive impact on the gold market. This is because changes in oil prices influence dollar value, inflation, and interest rate expectations.
Earlier on Monday, US President Donald Trump announced that he would temporarily postpone plans for new military strikes against Iran. Leaders from several Middle Eastern countries, including the Qatari Prime Minister, had requested this during discussions at the White House. Consequently, international crude oil prices fell further on Tuesday.
Meanwhile, Richmond Federal Reserve President Tom Barkin said on Monday that the central bank should conduct monetary policy cautiously to control inflation. In his view, inflation is currently the biggest risk. However, he did not provide any specific forecast regarding what decision should be made on interest rates at the Fed’s policy meeting in December.
Investors were also focused on the release of the US Consumer Price Index (CPI). The country’s October CPI was scheduled to be released on Tuesday. Following that, the Producer Price Index (PPI) would be published on Friday. Market participants were awaiting these data to gain insight into the inflation situation and the Fed’s future interest rate policy.
Alongside gold, prices of other precious metals also declined. According to subsequent market data from Tuesday, silver prices in the spot market fell by 1.9 percent to $52.42 per ounce. Platinum prices dropped by 1.1 percent to $1,560.08, and palladium prices decreased by 0.51 percent to $1,036.24.
Source – Reuters