Gold plunged to its lowest since April 2020 on Thursday amid expectations of more aggressive interest rate hikes by the Federal Reserve despite a fresh round of mixed data on the US economy.
Spot gold dipped 0.4% to $1,688.24 per ounce by 11:50 a.m. ET, having already fallen below the $1,700 mark earlier in the week. US gold futures had a more significant decline of 1.8% to $1,677.40 per ounce.
“The gold market has clearly priced in a more aggressive US Federal Reserve ahead of next week’s meeting, reflecting the central bank’s determination to fight inflation,” Carsten Menke, Head Next Generation Research at Julius Baer, told Reuters.
While the consensus is for a 75-basis-point (bps) hike, some are calling for a 100 bps increase, which is partly reflected in the gold market, Menke said, adding that a 75 bps hike could thus come as a positive surprise for the gold market.
The dollar index, meanwhile, held near a two-decade peak as a surprise rise in August inflation reported earlier this week boosted bets for an even more aggressive monetary policy. This was later followed by mixed economic data that helped gold to briefly pare its losses, but did little to assuage the inflation concerns.
Applications for US unemployment insurance fell for a fifth straight week, suggesting demand for workers remains healthy despite an uncertain economic outlook. Retail sales unexpectedly rose in August, but the prior month’s number was revised sharply lower. Factory production rose slightly during the month, while total industrial production, including mining and utilities fell.
“Damage is being driven by the market pricing in a 1% rate hike next week and a terminal rate around 4.5%,” Ole Hansen, head of commodity strategy at Saxo Bank, said in a Bloomberg note. “Stronger than expected retail sales are not helping, given their potential influence on the Fed’s upcoming rate decision.”
Gold has slid almost 8.8% this year as the Fed aggressively raises rates, which diminishes the appeal of assets that bear no interest. The dollar’s advance has also pressured the metal, though increasingly hawkish rhetoric by European Central Bank officials is containing its rally.
