Gold slides this week as Fed likely to keep interest rates higher for longer

However, the SPDR Gold Trust "shark" fund has made a strong comeback in purchasing gold this week after a long period of mostly selling off holdings...


World gold prices fell in Friday’s (15/3) trading session, completing the first week of decline after three consecutive weeks of gains, as investors reduced their expectations of a rate cut by the US Federal Reserve (Fed) after a series of data showed persistently low inflation in the country. However, the “shark” fund SPDR Gold Trust has made strong net purchases this week after a long period of net selling of gold.

At the close of the trading session on Friday in New York, spot gold prices fell $5.9/oz, or nearly 0.3%, to close at $2,156.7/oz, according to data from Kitco Exchange. This price is equivalent to approximately VND 64.7 million/tael when converted at the USD selling rate of Vietcombank.

In the domestic market this morning (16/3), the price of gold bars was adjusted upward in buying and downward in selling, while the price of gold rings decreased in both buying and selling compared to the end of the afternoon session yesterday. Among the listed prices at different companies, there was a significant difference.

Phu Quy Group quoted SJC gold bars at VND 79.5 million/tael (buying) and VND 81.4 million/tael (selling), an increase of VND 500,000/tael and a decrease of VND 300,000/tael compared to the end of the afternoon session yesterday.

Phu Quy 999.9 gold rings were priced at VND 68 million/tael and VND 69.3 million/tael for buying and selling, respectively, a decrease of VND 100,000/tael at both ends of the price.

Rong Thang Long 999.9 gold rings of Bao Tin Minh Chau Company were priced at VND 68.18 million/tael and VND 69.48 million/tael.

In Ho Chi Minh City market, SJC Company quoted the price of gold bars under the same brand at VND 79 million/tael and VND 81.5 million/tael. SJC gold rings were purchased at VND 67.65 million/tael and sold at VND 68.85-68.95 million/tael, depending on the weight of the product.

The domestic gold prices have fluctuated complexly this week, amidst the ups and downs of international gold prices due to the impact of US economic data. The supply-demand relationship in the domestic gold market is also an influential factor, causing domestic gold prices to have moments that do not closely follow international price movements.

Throughout the week, the price of domestic gold bars decreased by about half a million dong/tael, while the price of gold rings decreased by about 1.4 million dong/tael. During the week, there were moments when the domestic gold price reached a record high of over VND 82 million/tael for gold bars and over VND 71 million/tael for gold rings.

Regarding international gold prices, a series of inflation reports in the US released this week were higher than expected by economists, causing investors to reduce bets related to the Fed’s interest rate cuts in 2024. Gold is an asset that does not bear interest, so the prospect of higher interest rates for longer periods is not beneficial for gold prices.

The consumer price index (CPI) and the producer price index (PPI) for February in the US both increased more than the economists’ forecasts. According to data from the FedWatch Tool of the CME Exchange, the market is currently betting with less than 60% probability that the Fed will start cutting interest rates at the June meeting. Before this week, the betting rate for the June deadline was over 80%.

The movement of international gold prices this week. Unit: USD/oz.

The change in interest rate expectations is reflected in the yields of US treasury bonds, with the yield of the 10-year term increasing by about 22 basis points this week. In addition, the Dollar Index, which measures the strength of the USD against a basket of 6 major currencies, also increased by over 0.7% this week, closing at 103.45 points. This is the strongest weekly price increase for the greenback since mid-January.

Both bond yields and USD exchange rates have been unfavorable factors for gold prices. Throughout the week, international gold prices fell by 0.8%, marking the first week of decline since mid-February. Last week, international gold prices reached nearly USD 2,200/oz, the highest level ever recorded.

“Gold prices have fully reflected the positive effects of expectations of interest rate reductions. If inflation rebounds, the Fed will have to maintain a tighter policy for a longer period. Gold will face obstacles in a high-interest-rate environment, but high inflation also means that investors still buy gold because gold is an inflation-hedging asset,” commented senior analyst Everett Millman of Gainesville Coins, suggesting that there is still a chance for gold prices to rise.

A report from Goldman Sachs Bank predicts that the average gold price in 2024 will range from USD 2,090 to USD 2,180/oz, with prices possibly targeting USD 2,300/oz by the end of the year.

The SPDR Gold Trust, the world’s largest gold exchange-traded fund (ETF), unexpectedly made net purchases of nearly 14 tons of gold in Friday’s trading session, increasing its hold volume to 831.8 tons of gold. This is a rare strong net purchase session for the fund after a long period of net selling. This week, the fund has made net purchases of nearly 16 tons of gold, after a net selling of nearly 37 tons of gold in the previous 5 weeks.

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