World Gold Price Drops Significantly as Fed Keeps Interest Rates Higher for Longer
Gold Falls as Fed Raises Interest Rate Hike Expectations
Global gold prices declined sharply amid prospects that the US Federal Reserve (Fed) will maintain higher interest rates for an extended period. Domestic gold bar prices remained stable below VND 84 million/tael (3.6 ounces) this morning (April 18), while gold ring prices lost their hold above VND 77 million/tael (3.6 ounces).
Gold futures fell $21/oz, or 0.9%, to $2,361.2/oz at the close of Wednesday’s trading session in the US, according to data from the Kitco exchange.
The Fed’s potential delay in cutting interest rates, coupled with the recent surge in US Treasury bond yields and the US dollar, has placed downward pressure on gold prices. However, geopolitical tensions in the Middle East continue to support prices for the precious metal.
“Geopolitical uncertainty is still supportive for gold, and any escalation can take prices back up to the $2,500/oz area,” said Phillip Streible, chief strategist at Blue Line Futures. “Gold will come under pressure if there’s a pause in central bank buying or a big shift back into risk appetite by investors.”
Tensions in the Middle East remain high, despite the absence of further escalation. Ceasefire talks for the Gaza Strip continue, while analysts await Israel’s response to Iran’s weekend attack on the country.
Last Friday, gold briefly set a new all-time high of $2,431/oz before Iran’s attack on Israel on Saturday.
However, geopolitical support for gold prices is being outweighed by downward pressure from the prospect of prolonged higher interest rates.
On Tuesday, Fed Chairman Jerome Powell indicated that monetary policy may need to remain tighter for longer than anticipated due to slowing progress in bringing down inflation. Powell’s comments dampened expectations for the Fed to cut interest rates this year. The market now expects the Fed to begin cutting rates in September and possibly only once throughout 2024.
According to the CME’s FedWatch Tool, traders are currently pricing in a 71% probability of the Fed beginning to lower rates in September.
The US dollar declined on Wednesday, with the Dollar Index falling below 106 from 106.3 in the previous session. However, the index has gained about 1.9% over the past month. US Treasury bond yields also eased on Wednesday after hitting a five-month high earlier this week.
FXTM senior analyst Lukman Otunuga said that gold’s recent resilience suggests that the precious metal is decoupling from the strengthening US dollar and rising Treasury yields. However, Otunuga noted that gold could remain vulnerable to these headwinds in the near term.
The world’s largest gold ETF, SPDR Gold Trust, sold 2.7 tons of gold on Wednesday, reducing its holdings to 827.6 tons. While the fund has generally moved away from large net sales recently and has started to make modest purchases, the inflows have been limited.
At 9:00 AM Hanoi time today, spot gold in the Asian market was trading at $2,371/oz, up $9.8/oz or 0.4% from the previous overnight close in the US, according to Kitco.
Converted according to the dollar selling rate at Vietcombank, this world gold price equates to approximately VND 72.7 million/tael (3.6 ounces).
At the same time, Phu Quy Group listed SJC gold bar prices for the Hanoi market at VND 81.7 million/tael (3.6 ounces) for buying and VND 83.7 million/tael (3.6 ounces) for selling, unchanged from yesterday morning.
Phu Quy quoted round 999.9 gold rings by Phu Quy at VND 74.9 million/tael (3.6 ounces) and VND 76.7 million/tael (3.6 ounces) for buying and selling, respectively, down VND 300,000/tael (3.6 ounces) from yesterday morning.
Bao Tin Minh Chau Jewelry Company’s round 999.9 Dragon Thang Long gold rings are priced at VND 74.93 million/tael (3.6 ounces) and VND 76.63 million/tael (3.6 ounces).
Compared to the converted world gold price, SJC gold bar retail prices are currently higher by about VND 11 million/tael (3.6 ounces), while gold ring prices are approximately VND 4 million/tael (3.6 ounces) higher.
