Spot gold fell 1.8% to $1,813.11. US gold futures lost 1.9% to close at $1,817.70.
“It is likely that the Fed needs to raise interest rates more than expected in response to recent strong data and is prepared to take bigger steps if the totality of incoming information suggests that stronger measures are needed to control inflation,” Powell told US lawmakers.
“This direct reference to a ‘faster fit’even if mitigated by ‘if warranted’, it’s more of a nudge than a nudgeputting pressure on the precious metals complex as the dollar rises,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York.
The dollar index gained more than 1% following Powell’s comments, making bullion less affordable for foreign buyers.
“Gold had already pulled back from the strong close on Friday, but so far Powell is more direct and aggressive than the market had anticipated,” Wong said. Also, US stock indices fell after the comments.
“If Friday’s US jobs data shows significant resistance in the US labor market, it would pave the way for even higher rates. and could erase the gains reaped so far this month by the gold metal,” said Han Tan, chief market analyst at Exinity.
Why does gold fall? Despite being known as a hedge against inflation, higher rates reduce the attractiveness of gold, since they increase the opportunity cost of holding the asset, which does not earn interest.
In other precious metals, spot silver sank 4.7% to $21.04 an ounce; platinum lost 4.7%, to u$s929.96; and palladium fell 3.6% to $1,388.63.
Source: Ambito
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