Warsh's Rate Hike Hint Sends Gold Prices Tumbling

Gold prices dropped more than 1% after Federal Reserve Chair Kevin Warsh hinted at further rate hikes to combat inflation. Warsh's comments sparked a surge in interest-rate expectations, with CME FedWatch putting the implied odds of a September hike at 56%, up from 36%. This shift in market sentiment made gold less attractive as an investment option, particularly for investors seeking higher returns through short-term rates.

The price of spot gold fell to around $4,563 per ounce, while December gold futures dropped to roughly $4,615. The increased likelihood of rate hikes and a stronger US dollar made it more expensive for buyers abroad to purchase dollar-priced bullion.

This development marks a shift from earlier in the week when gold prices rose after the US Treasury outlined measures to support long-duration bonds. However, physical demand for gold has been shaky, with Reuters noting that gold discounts in India narrowed sharply as traders speculated about potential government policies.