Gold Slides to Two-Week Low as Fed Hikes Rate Hike Bets

Gold prices fell to their lowest level in nearly two weeks on August 31 as investors reassessed the possibility of another interest-rate increase in the United States. Spot gold dropped 0.3% to $4,439.31 an ounce by 6:43 am GMT after touching its weakest level since August 19.

The decline followed comments from US Federal Reserve Chair Kevin Warsh at the Jackson Hole Economic Policy Symposium on August 28, where he indicated that policymakers could have more work to do if they did not gain sufficient confidence that inflation was moving sustainably towards the central bank's 2% target. This was seen as a signal that the Federal Reserve may consider raising borrowing costs again.

Markets interpreted Warsh's remarks as a sign that an interest-rate increase is likely in September, with the probability of such an event rising to approximately 60%, according to CME's FedWatch tool. Higher interest rates can weaken gold prices because the metal does not generate interest, making it less attractive compared to other assets.

While inflation could support demand for gold as a store of value, expectations of tighter monetary policy increase the opportunity cost of holding non-yielding assets like bullion. The market is balancing these competing forces, with investors weighing the potential impact of an interest-rate hike on gold prices.