Gold Retreats After Record Highs
Gold prices eased on Tuesday after hitting an all-time high the previous day. The U.S. dollar and Treasury yields strengthened, prompting traders to adjust their positions ahead of the Federal Reserve’s anticipated interest rate decision. Spot gold dropped by 0.5%, settling at $2,569.43 per ounce, while U.S. gold futures closed 0.6% lower at $2,592.40.
Focus on Federal Reserve Meeting
The financial market’s attention is centered on the Federal Reserve’s two-day policy meeting, which concludes on Wednesday. According to the CME FedWatch tool, there is now a 63% chance of a 50-basis-point interest rate cut, compared to 34% a week ago. If confirmed, this would be the Fed’s first rate cut since 2020, influencing gold’s appeal.
Market Reactions
“The decline in gold today is due to rising rates across the yield curve,” said Bart Melek, head of commodity strategies at TD Securities. He suggested that a smaller-than-expected rate cut might reduce the demand for gold. Goldman Sachs also noted potential short-term downside for gold, though they maintain a long-term price target of $2,700 per ounce by early 2025.
Impact of Lower Interest Rates
Lower interest rates reduce the opportunity cost of holding gold, a non-yielding asset. As Ole Hansen, head of commodity strategy at Saxo Bank, explained, “With the cost of holding gold decreasing, we may see increased demand for gold-backed ETFs, particularly from asset managers in the West.”
U.S. Retail Sales Add Pressure
Adding to the pressure on gold, U.S. retail sales unexpectedly rose in August, suggesting a stable economy during the third quarter. This positive economic data further strengthened the dollar, reducing gold’s safe-haven appeal.
Other Precious Metals
Silver prices dipped by 0.2% to $30.71 per ounce after hitting a two-month high on Monday. Meanwhile, platinum edged up by 0.2% to $982.30 per ounce, and palladium surged by 3.5%, reaching $1,113.94 per ounce.
