Gold Prices Plummet Amid Hawkish Fed Prospects and Surging Oil
Gold prices continued their decline on Wednesday due to surging US Treasury yields and rising oil prices. The 10-year US Treasury yield hit a near three-year high at 4.81%, its highest level since November 2023. Higher yields make non-yielding assets like gold less appealing, which is bad news for investors holding onto the precious metal.
Strategists at BNY Mellon attribute the move in long-dated US yields to 'fiscal concerns and doubts about the Federal Reserve's credibility.' Fed Chairman Kevin Warsh's hawkish speech at the Jackson Hole Symposium led market participants to price in some tightening to come. Although Warsh stopped short of explicit forward guidance, his words were seen as advocating a rate hike.
The CME FedWatch tool shows a 67% chance that the Fed will hike interest rates this month, which is expected to further weigh on gold prices. Higher oil prices also boosted global inflation expectations, prompting fears of interest rate hikes by central banks. This bodes poorly for non-yielding assets like gold.
The US ADP Employment Change data for August will be released later in the day, and investors will keep a close eye on it as it can impact Fed's interest rate expectations. The daily chart of XAU/USD shows that gold is trading below its 20-day Exponential Moving Average (EMA) at around $4,409.75.