Warsh Comments Spark 3% Gold Plunge as Rate Hike Bets Surge

Gold prices plummeted by over 3% on Friday, reversing course after Federal Reserve Chairman Kevin Warsh's remarks sparked increased bets on an interest rate hike. Spot gold fell to its lowest level since August 20, reaching $4,567.23 per ounce at 01:44 p.m. EDT (1744 GMT). U.S. gold futures for December delivery settled 2.9% lower at $4,529.90.

Warsh's comments, which included acknowledging that the Fed has 'work to do' if policymakers are not confident that underlying inflation is returning to its 2% target, led traders to add bets on a September rate hike. According to the CME FedWatch tool, traders now see a 58% chance of a U.S. rate hike in September, compared with 36% before Warsh's comments.

The decline in gold prices can be attributed to its tendency to lose appeal in high-interest-rate environments, as it offers no yield. Additionally, the dollar rose to a one-week high, making greenback-priced bullion more expensive for holders of other currencies.