Gold Plunges to Two-Week Low as Fed Rate Hike Bets Rise

Gold prices have plummeted to their lowest level in nearly two weeks, as investors reassess the possibility of another interest-rate increase by the US Federal Reserve. The spot gold price fell 0.3% to $4,439.31 an ounce on August 31, after touching its weakest level since August 19.

The decline follows comments from US Federal Reserve Chair Kevin Warsh at the Jackson Hole Economic Policy Symposium, where he indicated that policymakers may need to raise borrowing costs again if they don't gain sufficient confidence that inflation is moving sustainably towards the central bank's 2% target. Markets interpreted this as a signal that the Federal Reserve may consider raising interest rates.

The probability of an increase at the September policy meeting rose to approximately 60%, according to CME's FedWatch tool, which has placed immediate pressure on gold prices. As gold does not generate interest, higher interest rates can make holding it relatively less attractive, and also strengthen the US dollar, making dollar-denominated precious metals more expensive for buyers using other currencies.

The market is balancing two competing forces: persistent inflation could support demand for gold as a store of value, but expectations of tighter monetary policy increase the opportunity cost of keeping money in a non-yielding asset. The renewed focus on tighter monetary policy has outweighed safe-haven demand, pushing bullion to its lowest level in nearly two weeks after Friday's sharp sell-off.

Other precious metals also moved lower on Monday, with spot silver declining 0.5% to $66.68 an ounce, platinum falling 0.7% to $1,807.37, and palladium dropping 1.1% to $1,405.75.