Fed Rate Hike Expectations Spark Market Volatility and Gold Price Plunge

The US Federal Reserve (Fed) Chairman Kevin Warsh recently emphasized the central bank's responsibility in bringing inflation back to target, sparking a strong volatile session in the financial market.

Following his speech at the Jackson Hole conference, expectations of the Fed raising interest rates in September increased significantly. The probability of an interest rate hike rose from about 36% to nearly 60%, while the possibility of interest rate cuts was almost excluded from calculations.

The yield of US Treasury bonds for the 2-year term, sensitive to monetary policy prospects, increased by about 9 basis points. The USD also strengthened against many major currencies.

Despite this, gold prices plummeted, falling to around $4,450.9 per ounce and losing $148.6, equivalent to 3.23%, in one session. This reflects the precious metal's sensitivity to Fed policy expectations, with higher interest rates often supporting the USD and bond yields.

However, persistent inflation, increased US public debt, high long-term bond yields, and the need for central banks to diversify their reserves may continue to impact the gold market in the long term.