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 Wednesday morning Vietnam time (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/tael, a decrease of VND 700,000/tael from the previous day.
Vietcombank’s posted exchange rate for the US dollar at the beginning of Wednesday was VND 24,635 (buying) and VND 25,025 (selling), a decrease of VND 25 for both buying and selling rates compared to Tuesday.
The decline in gold prices extended into the fifth consecutive session, marking the sharpest percentage drop since late August. Gold prices have stagnated and fluctuated since reaching an all-time high of $2,685.42/oz on September 26.
“Gold prices have been on a downward trend in recent days due to shifting interest 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 betting on an 87.5% likelihood of the Fed lowering interest rates in their next meeting, with this entire percentage attributed to a 0.25 percentage point reduction. The remaining 12.5% indicates the possibility of the Fed keeping interest rates unchanged at 4.75-5%.
Just last week, the probability of a 0.5 percentage point cut in November hovered between 30-40%.
The shifting interest rate expectations have pushed up US Treasury bond yields and the US dollar rate, exerting further downward pressure on gold prices.
On Monday, the yield on the 10-year US Treasury bond surpassed 4% for the first time in two months. During Tuesday’s session, the yield on this bond eased slightly but remained above 4%, ending the session at around 4.02%.
The Dollar Index, measuring the strength of the US dollar against a basket of six other major currencies, closed Tuesday at 102.55, up 0.01 points from the previous session’s close. Over the past five sessions, this 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 of the September meeting on Wednesday.
The inflation reports will play a role in determining the magnitude of the Fed’s interest 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 fuel new hopes of a significant Fed rate cut. Therefore, gold prices can only rely on geopolitical risks to climb higher,” stated Commerzbank in a report.
Christopher Watling, a strategist at Longview Economics, opined that the surge in US Treasury bond yields and the sudden strength of the US dollar had “put the brakes” on gold’s rally. “In addition to changing interest rate expectations and the US dollar exchange rate, gold prices are also vulnerable from the perspective of investor positioning, sentiment, and technical patterns,” Watling added.
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