Gold Prices Plummet as Hawkish Warsh Comments Lift Dollar and Yields
Gold prices plummeted over 2.5% on Friday as hawkish comments from Federal Reserve Chair Kevin Warsh lifted the US Dollar and Treasury yields. The price of gold, represented by XAU/USD, fell to $4,473 after touching a high of $4,629.
The US Dollar Index (DXY) rose 0.6% to 99.72, while the 10-year yield climbed 5.5 basis points to 4.728%. In his remarks at the Jackson Hole conference, Warsh emphasized that inflation remains a top priority for the Fed and that it must be confident in returning to its 2% target.
The hawkish shift has led to an adjustment in rate hike expectations, with money markets initially pricing a 50% chance of a 25-basis-point hike at the September 16 Fed meeting. However, this probability was trimmed to nearly 44%, while December pricing implied an 82% chance of a rate hike.
Derivative traders are now preparing for further downside in gold prices, with some suggesting short-term put options on XAU/USD as a strategy. Others recommend buying out-of-the-money call options on the US Dollar to capitalize on the momentum.