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 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 USD selling rate, this is equivalent to nearly VND 79.1 million/tael, a decrease of VND 700,000/tael from the previous day.
Vietcombank’s USD buying and selling rates at the beginning of the day were VND 24,635/USD and VND 25,025/USD, respectively, a decrease of VND 25/USD on both sides compared to the previous day.
The overnight session marked the fifth consecutive day of losses for gold prices, and the sharpest percentage decline 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 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 a Fed rate cut in the upcoming meeting, with all of this percentage dedicated to a 0.25 percentage point reduction. The remaining 12.5% is assigned to 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 fluctuated between 30-40%.
The shifting rate expectations have pushed up US Treasury yields and the US 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%, ending the session at around 4.02%.
The US 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) scheduled for release 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.
These 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 expected to show that price pressures continue to ease, but it is unlikely to rekindle 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, opined that the surge in US Treasury yields and the sudden strength in the US dollar have “put the brakes” on gold’s rally. “In addition to shifting interest rate expectations and the US dollar exchange rate, gold is also vulnerable from the perspective of investor positioning, sentiment, and technical patterns,” added Watling.
