Global gold prices plummeted during Tuesday’s trading session (October 8) amid a strong US dollar and rising US Treasury bond yields. This came as markets no longer anticipated 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 September meeting minutes and the latest inflation data from the US Department of Labor.
At the close of trading, spot gold on the New York market 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 Vietnamese time this morning, spot gold prices in the Asian market were down $0.20/oz from the US session close, trading at $2,622.00/oz. Converted at Vietcombank’s selling exchange rate, this price was equivalent to nearly VND 79.1 million/locus, a decrease of VND 700,000/locus 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 yesterday morning.
Last night’s session marked the fifth consecutive decline for gold prices and the sharpest percentage drop since late August. The precious metal has stagnated and fluctuated since reaching an all-time high of $2,685.42/oz on September 26.
“Gold prices have fallen in recent days due to changing interest rate expectations,” said David Meger, director of precious metals 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 that the Fed will cut interest rates at its next meeting, with this entire percentage dedicated to a 0.25 percentage point reduction. The remaining 12.5% accounts for the possibility that the Fed will keep interest rates unchanged at 4.75-5%.
Just last week, the likelihood of a 0.5 percentage point reduction in November hovered 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 4% for the first time in two months. During Tuesday’s session, the yield on this maturity fell 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, ended Tuesday’s session at 102.55 points, up 0.01 points from the previous session’s 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 turn to 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 role in determining the extent of the Fed’s rate cut in November, which will, in turn, influence 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 spark 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 rising US Treasury bond yields and a stronger dollar had “put the brakes” on gold’s rally. “In addition to changing interest rate expectations and exchange rates, gold prices are also vulnerable from the perspective of investor positioning, sentiment, and technical patterns,” Watling added.
