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Gold futures were headed for their lowest level in six weeks and the biggest one-day percentage loss this year on Thursday, after a hawkish turn by the Federal Reserve.
Basically, officials are reviewing the timetable for raising interest rates [have] “It brought a slight tantrum for the price of gold,” Naim Aslam, chief market analyst at AvaTrade, said in a market update late Wednesday. For investors, the opportunity cost of holding non-interest bearing assets has increased and gold has become [a] Less attractive to them at the moment.”
For August delivery, gold GCQ21, -4.87% GC00, -4.87%, fell $77.30, or 4.2%, to $1,784.10 an ounce. On Wednesday, contract prices rose $5, or 0.3%, to settle at $1,861.40 an ounce in Comex, cutting a three-session streak of losses, but prices started falling again shortly after the Fed’s announcement.
Prices for the most active gold futures contract are now poised to settle at their lowest level since May 5, according to FactSet data.
While the Federal Open Market Committee held the interest rate steady and made no change to its asset purchase program on Wednesday, it also indicated that the rate would rise sooner than expected, with its forecasts for two increases in 2023. The Fed raised the inflation rate. Expectations for this year and next.
Recent data showing higher prices has led many to believe that the Fed will at least start early discussions about reining in some of its highly accommodative policy aimed at shielding the economy from the COVID-19 pandemic, but the policy statement was more hawkish than some had expected. .
Gold prices have come under pressure, losing more than 4% so far this week. Based on the most active contracts, Wednesday’s drop would be the largest one-day percentage drop since November 9, when prices fell 5%.
The Fed’s hawkish shift pushed bond yields higher, with two-year Treasuries, TMUBMUSD02Y, up 0.217% at a one-year high of 0.201%. ICE DXY Dollar Index, +0.82%, rose 0.7% to 91.78.
“Higher yields increase the opportunity cost of holding non-interest bearing gold, and prospects for a further increase in yields should limit the potential for a rally in the yellow metal despite mounting inflationary pressures,” said Ipek Ozkardeskaya, chief analyst at Swissquote. On a note to customers. She added that prices may drop below the key level of $1,800 an ounce, which is what happened with the start of the trading day in the United States.
Investors should not be surprised by the prospects for a Fed rate hike in 2023, even though the combination of a stronger US dollar and higher yields pose significant obstacles for the precious metal, Carsten Fritsch, analyst at Commerzbank, told clients in a note.
However, whether it justifies lower prices on this scale is another matter. After all, gold has already fallen in recent days in anticipation of a possible change in direction on the part of the Fed. In our opinion, interest rate increases in two years are too far away to justify any rate decline, especially since yields are well below the expected rate of inflation, Fritsch said.
He noted that Federal Reserve Chairman Jerome Powell said that the possibility of exiting the bond buying was discussed but no decision was taken, so the central bank will continue to buy bonds of up to 120 billion dollars per month, which will strengthen its balance sheet and money supply.
“We view the apparent decline in the price of gold as excessive, although it will likely take some time before the setback is absorbed.” ”
– Carsten Fritsch, Commerzbank
“We consider the apparent decline in the price of gold to be excessive, although it will likely take some time before the reversal is absorbed,” Fritsch said.
Silver also fell for the month of July SIN21, -6.75%, which fell $1.67, or 6%, to settle at $26.15 an ounce. This drop is sending silver to its lowest level since late April.
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Elsewhere, prices for other metals also fell sharply, with copper HGN21 for July down -3.43% by 2.7% to nearly $4.27 a pound, in a week that has so far seen the metal drop about 6%.
James Steele, chief precious metals analyst at HSBC Securities, said, “Silver is down, along with gold, and may be partly governed by future gold movements, but silver … is also affected by base metal price movements, particularly copper prices to name a few. confinement.” In a note late on Wednesday. “Copper and other base metals, after racing to the top this year, have corrected. More supply may be on the way.”
China’s Food and Strategic Reserves Administration said on Wednesday it plans to release copper, aluminum, zinc and other national reserves in batches in the near future, to ensure supply stability and bulk commodity prices.
PLN21 platinum for the month of July was down -6.16% by $58.30, or 5.1%, to $1083.60 an ounce, while in September PAU21, palladium was down -9.97% by $214.80, or 7.6%, to $2,622 an ounce. Palladium was headed for its biggest one-session drop since April 2020.
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