Gold Prices Dive as Fed Signals Higher Rates for Longer
Global gold prices have plummeted, falling below the crucial $2,300/oz level amid escalating concerns over the US Federal Reserve (Fed) maintaining elevated interest rates longer than anticipated, following hotter-than-expected recent economic figures. Domestic gold prices this morning (May 1st) have declined only a few hundred thousand VND per tael compared to before the holiday break.
Closing Tuesday’s session in New York, spot gold prices dropped 2.1% to $2,286.9/oz, according to data from the Kitco exchange.
At nearly 10 am this morning, Vietnam time, spot gold prices in Asian markets were up $1.2/oz compared to the US closing price, trading at $2,288.1/oz. Converted at the USD selling rate at Vietcombank, this international gold price equates to approximately 70.2 million VND/tael.
Compared to the pre-holiday period of April 30th-May 1st, the current converted global gold price has decreased by approximately 1.5 million VND/tael.
Meanwhile, the prices of SJC gold bars and 999.9 pure gold round bars in retail markets have only experienced a general decline of around 400,000-500,000 VND compared to before the holiday.
At nearly 10 am, Phu Quy Corporation listed SJC gold bar prices for the Hanoi market at 82.6 million VND/tael (buying) and 84.7 million VND/tael (selling). Phu Quy’s 999.9 pure gold round bars were priced at 74.3 million VND/tael and 76 million VND/tael.
Concurrently, Bao Tin Minh Chau Company quoted SJC gold bar prices at 82.6 million VND/tael and 84.65 million VND/tael and priced 999.9 pure Rồng Thăng Long gold round bars at 74.19 million VND/tael and 75.79 million VND/tael.
Global gold faces downward pressure from the prospect of delayed rate cuts by the Fed and simultaneous increases in US Treasury yields and the US dollar exchange rate.
Despite this, geopolitical risk mitigation demands and net gold purchases from central banks continue to support gold prices. These factors drove global gold prices up by approximately 3.3% in April, marking the third consecutive month of gains. During this period, gold prices surged to all-time highs above $2,430/oz.
The US dollar strengthened by 0.3% against a basket of six other major currencies on Tuesday. This morning, the Dollar Index continued to rise, reaching 106.4 points, its highest in five months. The yield on the 2-year US Treasury note surpassed the crucial 5% threshold.
“Many traders have taken profit on gold. They are cautious ahead of the Fed meeting outcome,” Bob Haberkorn, a strategist at RJO Futures, told Reuters.
The Fed initiated its two-day policy meeting on Tuesday and is expected to release a statement on Wednesday afternoon, local time. The world’s largest central bank’s policymakers are projected to signal they are not yet ready to cut interest rates as recent inflation and wage data continue to indicate substantial price pressures.
A report released by the US Labor Department on Tuesday showed that the employment cost index, a measure of employee wages and benefits, rose by 1.2% in the first quarter, exceeding the 1% increase economists had forecasted in a Dow Jones survey. Strong wage growth implies persistent inflationary pressures.
“However, physical gold demand from Asia and central banks remains high. Risk-hedging gold purchases have increased over the past couple of years. For that reason, gold is still in a position to possibly see gains for the rest of the year,” Haberkorn added.
But in the short term, investors must not overlook the risk of gold depreciation. According to Ricardo Evangelista, senior analyst at ActiveTrades, the tone adopted by Fed Chair Jerome Powell at Wednesday’s press conference could be hawkish. Evangelista believes market expectations for the Fed’s first rate cut may be pushed back to the fourth quarter or even next year – an unfavorable scenario for gold prices.
