Gold Prices Slide Amid Higher Interest Rate Expectations
Gold prices took a hit on Tuesday as markets factored in more restrictive monetary policy from the US Federal Reserve this year. The problem, according to Bart Melek, global head of commodity strategy at TD Securities, is that despite oil trending down somewhat, the market continues to robustly price Fed hikes.
The CME FedWatch Tool shows a 90% chance of a rate hike in December, up from 80% last week. This comes after the Fed raised interest rates last week and Chair Kevin Warsh flagged more hikes to come in the months ahead. Central banks around the world are adopting restrictive policy stances due to inflation concerns stemming from strong demand and rising energy prices.
Gold has shed over 22% since hitting an all-time high of $5,594.82/oz in January. Although bullion is traditionally considered an inflation hedge, it loses its appeal to yield-bearing assets in a high-interest-rate environment.