Gold fell toward $4,100 on Wednesday as a stronger dollar and hawkish signals from the Federal Reserve pressured bullion. Minutes from the Fed's September meeting showed most policymakers expect another rate hike by year end, while the 10-year Treasury yield pushed toward its highest level since 2002. Central bank buying continued to offer some support.
Dollar strength drags gold lower
Gold dropped 1.8% to $4,087.43 on Wednesday as the U.S. dollar firmed. The dollar index rose 0.4% to 102.26, making the metal more expensive for overseas buyers as traders awaited minutes from the Fed's latest meeting.
David Morrison, Senior Market Analyst at Trade Nation, called the decline "yet another slap in the face for the bulls", coming after a month-long 17% rally off $4,000 at the end of July began unwinding.
Fed minutes confirm hawkish lean
Minutes released Wednesday showed most U.S. policymakers see another interest rate hike by the end of this year. The FOMC had unanimously raised the federal funds rate by 25 basis points to a range of 3.75%-4.00% in September, its first hike in over three years. Policymakers remain focused on controlling inflation, which has hovered well above the Fed's 2% target for months.
Still, futures price an 86% chance of a hike by the end of the year, even as the odds of an increase this month have fallen sharply.
Treasury yields hit 24-year highs
The selloff deepened as the 10-year Treasury yield climbed to 5.345%, within half a basis point of Monday's peak, the highest since April 2002. The benchmark yield has also surged 28 basis points since September 16, raising the opportunity cost of holding non-yielding bullion. Gold has largely stopped trading as a safe haven and is now moving in step with the rate market, with each escalation in the Middle East lifting oil, inflation expectations and yields while pressuring the metal.
Central banks have kept buying regardless. World Gold Council data cited by ING showed central banks remained net buyers in August, adding 39 tonnes and pushing year-to-date purchases to 170 tonnes. China's central bank also added to its reserves in the latest monthly data, though the support faded once European trading got underway. Money managers, meanwhile, have cut net bullish gold positions for a fifth straight week, extending the pressure on the metal.
Sources: Commodities & Futures News, Economy News, Commodities Analysis & Opinion
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