Gold slides about 1% as bets on a Fed rate hike outweigh caution before US inflation data

what happened

Gold fell about 1% on Thursday as persistent inflation boosted expectations of a possible US Federal Reserve rate increase later this year, Reuters reported. Spot gold was quoted at $4,022.19 an ounce at 0855 GMT, and in a later update at 1121 GMT it was down 0.8% at $4,035.28. The Fed left rates unchanged on Wednesday and postponed decisions until after the US midterm elections next week, while it waits for more inflation figures. According to the CME FedWatch Tool, traders priced a December hike at roughly 80% or 90%, depending on the version of the report. Silver, platinum and palladium also declined.

why it matters

Gold pays no interest, so higher rates raise the opportunity cost of holding it. A second channel runs through oil: if oil benchmarks climbed back toward $120 a barrel, inflation pressure could push the Fed toward tightening, which could weigh on bullion further. Hopes for renewed talks with Iran have eased oil prices for now.

market impact

Gold and platinum-group metals: expectations of higher Fed rates are pressing prices down.

• ▼Gold pressure down — higher expected rates raise the opportunity cost of holding non-yielding metal
• ▼Silver pressure down — weakness in gold and tighter Fed expectations weigh on prices
• ▼Platinum pressure down — decline tied to expectations of higher US interest rates
• ▼Palladium pressure down — expectations of tighter monetary policy limit demand for the metal

tags

instruments