Gold Prices Plummet as Fed Inflation Fears Intensify

Gold prices continue to decline after facing pressure from the US Federal Reserve's tough stance on inflation. As of August 31, spot gold prices fell 1.06% to $4,407.65 per ounce. December gold futures also dropped 1.65%, to $4,455.19 per ounce.

The current decline is a continuation of the strong sell-off session last weekend, where gold prices fell more than 3%. This was largely due to Fed Chairman Kevin Warsh's signal that the US central bank still needs to act if inflation does not return to the 2% target.

High interest rates are detrimental to gold because precious metals do not generate yields. With bond yields and opportunity costs increasing, the attractiveness of non-performing assets like gold tends to decline.

Nicky Shiels, Head of Metal Research and Strategy at MKS PAMP SA, notes that the policy of the US Treasury Department and the Fed is creating a tug-of-war in the market. While the Fed maintains a tough stance on inflation, moves from the Treasury Department may support cash flow into gold.