Fed Hawkishness Sends Precious Metals Reeling
The US Federal Reserve's recent hawkish stance has had a significant impact on precious metals and commodity prices. Speaking at the Jackson Hole Economic Symposium, Fed Chairman Kevin Warsh emphasized the importance of meeting the central bank's 2% inflation target, signaling that additional interest rate hikes may be necessary to combat rising inflation.
The PCE price index, closely watched by the Fed as an inflation indicator, rose 0.2% month-on-month in July and 3.7% annually. This has led to increased expectations of a 25-basis-point rate hike at the Fed's September meeting, with money markets raising the probability from 35% to 60%. Warsh's remarks also strengthened expectations that an additional rate hike could come in December.
The strengthening dollar and higher bond yields have increased the opportunity cost of holding gold, pushing its price lower. Despite reaching a high of $4,696.8 on Tuesday, the ounce price of gold ended the week lower and snapped a three-week rising streak. Palladium rose 5.3%, while silver fell 3.8%, gold declined 3.2%, and platinum lost 3%.