NEW YORK: Gold prices eased on Thursday, hitting a one week-low, as a rise in oil prices and a hawkish shift in rhetoric anchored expectations of higher interest rates from the Federal Reserve.
Spot gold was down 0.4percent at USD4,271.16 per ounce as of 9:35 a.m. ET (1335 GMT), after having hit its lowest since September 16. US gold futures for December delivery lost 0.3percent to USD4,306. “Gold continues to be burdened by higher energy prices along with higher interest rates… with higher energy prices, the expectation of inflationary concerns grows and the potential for additional rate hikes by the Fed,” said David Meger, director of metals trading at High Ridge Futures.
Oil prices rose more than 1percent as diplomatic talks between the US and Iran showed little sign of progress. Energy prices can feed into headline inflation as manufacturers pass on higher costs. This forces central banks to adopt more restrictive policy stances to reign in price pressures.
The Fed raised interest rates for the first time in three years last week, and signalled further rate hikes this year. Several Fed officials reinforced the need for more rate increases, with Governor Michael Barr being the latest to highlight the need for tighter monetary policy.
Traders are now pricing a 66percent chance of a rate hike in October, according to CME’s FedWatch Tool. While gold is a traditional inflation hedge, rising interest rates tarnish its appeal. Pressuring bullion, the dollar hit a two-month high, making greenback-priced gold more expensive for overseas buyers, while US 10-year Treasury yields hovered at a near two-decade high, increasing the opportunity cost of holding the non-yielding metal.
“Gold’s recent support low around USD4,235 is the first level to watch. A break could expose the market to a deeper correction and potentially renewed focus on the June-July area around USD4,000,” said Ole Hansen, head of commodity strategy at Saxo Bank in a note. Spot silver fell 1.8percent to USD63.29 per ounce, platinum fell 0.2percent to USD1,746.44, while palladium gained 0.5percent to USD1,266.40.
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