Hawkish Fed Comments Send Gold Prices Plummeting to $4,215
Gold prices dropped to around $4,215 in early Asian trading on Monday due to renewed US Dollar strength and hawkish comments from Federal Reserve officials.
The comments from several Fed policymakers solidified expectations for higher interest rates after the recent quarter-point hike in September. Cleveland Fed President Beth Hammack stated that inflation risks remain elevated and argued that restrictive monetary policy needs to be maintained.
Fed Governor Michael Barr also commented that 'further policy adjustments are likely to be needed' to bring inflation under control, while Fed Presidents Tom Barkin and Susan Collins endorsed the recent rate increase, pointing to ongoing inflation pressures as justification for tighter policy.
As a result, gold prices came under pressure from higher policy rates, which typically weigh on non-yielding assets such as gold. Kelvin Wong, senior market analyst at OANDA, noted that 'focus will definitely continue to be on the interest rate situation' and that a hawkish Fed would strengthen the dollar and be negative for gold.
Strategists at OCBC observed that gold 'slipped further to below 4250 briefly before rebounding slightly overnight,' citing renewed tensions in the Middle East, which pushed oil prices higher, as well as firm US data and hawkish Fed comments. They noted that the implied probability of an October rate hike rose to over 70%, while the USD firmed.