Gold under pressure from US interest rate expectations

Gold prices fell in European trading on Monday, resuming losses that had paused for two sessions during a recovery from six-week lows, pressured by a stronger US dollar against a basket of global currencies.

More hawkish comments from a Federal Reserve official strengthened expectations for another US interest rate hike in October, with investors awaiting further evidence on whether the monetary tightening cycle will continue during the remainder of the year.

The Price

• Gold prices fell 0.85% to $4,342.07 an ounce, from an opening level of $4,378.80, after recording a high of $4,383.52.

• At Friday’s settlement, gold prices rose 0.9%, their second consecutive daily gain, as the precious metal continued recovering from a six-week low of $4,235.30 an ounce.

• Supported by that recovery, gold gained 0.7% last week, recording its first weekly advance in a month.

US dollar

The US Dollar Index rose more than 0.1% on Monday, resuming gains that had paused for two sessions and reflecting renewed strength in the US currency against a basket of global currencies.

As we know, a stronger US dollar makes dollar-denominated gold less attractive to buyers holding other currencies.

The dollar’s advance was supported by demand for the US currency as the most attractive investment in the foreign exchange market amid the Federal Reserve’s hawkish stance, as well as demand for the dollar as an alternative investment amid escalating geopolitical tensions in the Middle East.

US interest rates

• Minneapolis Federal Reserve President Neel Kashkari said inflation remains far too high and that inflationary pressures have broadened beyond the oil price shock caused by the Iran war.

• Following those comments, according to the CME FedWatch Tool, the probability of the Federal Reserve leaving interest rates unchanged in October fell from 48% to 46%, while the probability of a 25-basis-point rate hike increased from 52% to 54%.

• The probability of the Federal Reserve leaving interest rates unchanged in December currently stands at 10%, while the probability of a 25-basis-point increase stands at 90%.

• Investors are closely monitoring further US economic data and comments from Federal Reserve officials to reassess those expectations.

Gold outlook

Tim Waterer, chief market analyst at KCM Trade, said: “Attention remains focused on geopolitical factors, oil prices and the reaction in bond yields. For gold to gain meaningful upward momentum, it will likely need a clear decline in oil prices and bond yields.”

Waterer added that gold could trade within a range of roughly $4,200 to $4,580 an ounce in the near term.

SPDR

Holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased by around 4.28 metric tons on Thursday, marking a fourth consecutive daily increase and lifting the total to 1,057.12 metric tons, the highest level since April 20.