Gold Falls Below $1,700 Against Stronger Dollar, Bets on Higher Interest Rates
Gold prices fell below the key $1,700 level on Thursday for the first time since July as the rising dollar and expectations of aggressive interest rate hikes eroded its appeal.
Spot gold was down 0.8% at $1,696.76 an ounce at 1:58 p.m. ET, after falling to its lowest since July 21 earlier in the session.
US gold futures fell 1% to $1,709.3.
Gold is considered a safe store of value in times of economic uncertainty, but a higher rate environment tends to tarnish the asset as it earns no interest.
“If the Fed sticks to its inflation mandate and keeps rates high and refrains from cutting rates even in a recession, it doesn’t bode well for gold,” said Daniel Ghali. , commodity strategist at TD Securities.
“If gold breaks below the $1,675 range, we expect substantial selling pressure to emerge.”
Reflecting investor sentiment, holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell to 31,294,673 ounces on Wednesday, the lowest since January. [GOL/ETF]
The dollar index hit its highest level in 20 years, after data showing growth in the US manufacturing industry in August and a drop in the number of Americans filing new claims for unemployment benefits last week gave the Federal Reserve more leeway to aggressively raise interest rates. [USD/][US/]
A higher dollar makes bullion more expensive for foreign buyers. Yields on US Treasuries also rose, increasing the opportunity cost of holding non-performing bullion.
Spot silver fell 1% to $17.99, after hitting its lowest level in more than two years.
Platinum fell 2.4% to $825.61 an ounce while palladium fell 3.5% to $2,011.48.
“As we watch the barrel of the recession, industrial metal prices are particularly vulnerable,” Ghali added.
Factory activity in Asia fell in August as shutdowns in China and cost pressures continued to hurt businesses, surveys show.
(Reporting by Ashitha Shivaprasad, Seher Dareen and Rahul Paswan in Bengaluru; Editing by Krishna Chandra Eluri and Vinay Dwivedi)
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