Global gold prices plummeted during Tuesday’s trading session (October 8) amid a strong US dollar and rising US Treasury bond yields. This comes as markets no longer anticipate a 0.5 percentage point interest rate cut from the Federal Reserve in their upcoming meeting. Investors also exercised caution ahead of the Fed’s release of the September meeting minutes and the latest inflation data from the US Department of Labor.
At the close of trading in New York, spot gold prices fell by $20.90/oz compared to the previous session’s close, equivalent to a 0.79% drop, ending at $2,622.20/oz, according to data from the Kitco exchange.
As of early morning in Vietnam (around 8 am), gold prices in the Asian market dipped by $0.20/oz from the US session close, trading at $2,622.00/oz. Converted using Vietcombank’s selling exchange rate, this price is equivalent to nearly VND 79.1 million/troy ounce, a decrease of VND 700,000/troy ounce compared to yesterday morning.
Vietcombank quoted the dollar at VND 24,635 (buying) and VND 25,025 (selling) at the beginning of the day, a decrease of VND 25 for both buying and selling rates compared to the previous day.
Tuesday’s decline marked the fifth consecutive session of losses for gold prices, and the sharpest percentage drop since late August. The precious metal has been range-bound and consolidating since hitting an all-time high of $2,685.42/oz on September 26.
“Gold prices have pulled back in recent days due to shifting rate expectations,” said David Meger, director of metal trading at High Ridge Futures, in a statement to Reuters.
According to data from the FedWatch Tool on the CME exchange, markets are now betting on an 87.5% likelihood of a Fed rate cut in the upcoming meeting, with all of this percentage attributed to a 0.25 percentage point reduction. The remaining 12.5% is assigned to the possibility of the Fed keeping rates unchanged at 4.75-5%.
Just last week, the probability of a 0.5 percentage point cut in November fluctuated between 30-40%.
The shifting rate expectations have pushed up US Treasury yields and the dollar index, exerting further downward pressure on gold.
On Monday, the yield on the 10-year US Treasury note surpassed the 4% threshold for the first time in two months. On Tuesday, the yield on this benchmark note eased slightly but remained above 4%, closing the session at around 4.02%.
The Dollar Index, which measures the greenback’s strength against a basket of six major currencies, ended Tuesday’s session at 102.55, up 0.01 points from the previous close. Over the past five sessions, the index has climbed more than 0.8%, according to data from MarketWatch.
For the remainder of the week, investors will focus on US inflation data, including the consumer price index (CPI) expected to be released on Thursday and the producer price index (PPI) on Friday. Prior to that, the Fed will publish the minutes from its September meeting on Wednesday.
The inflation reports will play a crucial role in determining the magnitude of the Fed’s rate cut in November, subsequently influencing the trajectory of gold prices.
“The inflation data to be released by the US on Thursday is likely to show that price pressures continue to ease, but it is unlikely to rekindle fresh hopes of a significant rate cut by the Fed. Therefore, gold prices can only rely on geopolitical risks to climb higher,” stated Commerzbank in a report.
Christopher Watling, a strategist at Longview Economics, attributed the halt in gold’s upward momentum to the surge in US Treasury yields and the sudden strength in the dollar. “In addition to the shift in rate expectations and the dollar’s exchange rate, gold is also vulnerable from the perspective of investor positioning, sentiment, and technical patterns,” Watling remarked.
