Gold prices dropped more than 1% to a near one-week low on Wednesday as hawkish comments from Federal Reserve policymakers raised expectations of rate hikes and drove the US dollar to two-month highs, pressuring non-yielding bullion.
Spot gold was down 1.7% to $4,282.53 per ounce by 1725 GMT, after touching its lowest since Sept. 17 earlier. U.S. gold futures for December ended down 1.3% at $4,318.40. Peter Grant, vice president and senior metals strategist at Zaner Metals, said the stronger dollar is putting pressure on gold. “Post-FOMC Fed speak has been pretty hawkish. So the market is pricing on expectations of a further rate hike before the end of the year. And that is putting pressure on gold.”
The dollar hit a two-month high, making dollar-priced bullion more expensive for holders of other currencies. Fed members took a hawkish turn this week, with Chicago Fed President Austan Goolsbee saying the U.S. central bank may need to see the current energy shock as a source of sustained inflation and not expect it to evaporate on its own. Richmond Fed President Tom Barkin and Boston Fed President Susan Collins both said they supported last week’s rate hike, citing inflation concerns.
The remarks follow other Fed members who had expanded their concerns around inflation. Bullion has been a classic hedge against inflation but rising interest rates might make it less appealing compared to interest-bearing investments.
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