Global gold prices plummeted during Tuesday’s trading session (October 8), pressured by the resilient US dollar and rising US Treasury bond yields, as markets no longer anticipate a 50-basis-point interest rate cut from the Federal Reserve in its upcoming meeting. Investors also remained cautious ahead of the Fed’s release of 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.
At around 8 am Vietnam time, spot gold prices in the Asian market dipped by $0.20/oz compared to the US session close, trading at the $2,622.00/oz level. Converted at Vietcombank’s selling exchange rate, this price is equivalent to nearly VND 79.1 million/lotte, a decrease of VND 700,000/lotte compared to yesterday morning.
Vietcombank quoted the dollar at the beginning of the morning at VND 24,635 (buying) and VND 25,025 (selling), down VND 25 at both ends compared to the previous morning.
Last night’s trading session marked the fifth consecutive decline for gold prices and the sharpest percentage drop since late August. The precious metal has been range-bound and choppy 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 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 now betting on an 87.5% likelihood of the Fed lowering interest rates at its next meeting, with this entire percentage expecting a 0.25-percentage-point reduction. The remaining 12.5% accounts for the possibility of the Fed keeping rates unchanged at 4.75-5%.
Just last week, the probability of a 50-basis-point cut in November fluctuated between 30-40%.
The shifting rate expectations have pushed up US Treasury bond yields and the dollar index, exerting further downward pressure on gold.
On Monday, the yield on the 10-year US Treasury bond surpassed the 4% threshold for the first time in two months. During Tuesday’s session, the yield on this tenor eased slightly but remained above 4%, ending the session at around 4.02%.
The Dollar Index, which measures the strength of the US dollar against a basket of six other major currencies, closed Tuesday’s session at 102.55 points, 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 this week, investors’ attention 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 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 could show that price pressures continue to ease, but it is unlikely to fuel new 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, argued that the surge in US Treasury bond yields and the sudden strength in the dollar have “put the brakes” on gold’s rally. “In addition to shifting rate expectations and the dollar’s exchange rate, gold is also vulnerable from the perspective of investor positioning, sentiment, and technical patterns,” Watling added.
