Gold prices slid on Tuesday after US Federal Reserve Chair Jerome Powell hinted at big rate hikes down the year to curb what is the hottest inflation seen in over 40 years.
Spot gold fell 1.0% to $1,918.65 an ounce by 11:50 a.m. ET, while US gold futures on the Comex dropped 0.7% to $1,915.30 an ounce.
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On Monday, Powell said in a press conference that policymakers needed to move “expeditiously” as inflation runs hot, raising the possibility of hikes.
Goldman Sachs economists saw the comments as a hawkish signal and now expect the Fed to raise interest rates by 50 basis points at both its May and June policy meetings, followed by four 25 basis point increases in the second half of the year.
Powell’s comments triggered a sharp sell-off in the bond market, sending US 10-year Treasury yields to the highest since May 2019, which diminished the appeal of non-yielding bullion.
“The fact the Fed is ready to do half point increases versus a quarter point moving forward is all pretty hawkish and has pushed gold lower,” RJO Futures senior market strategist Bob Haberkorn told Reuters.
Despite this, analysts including Haberkorn believe that pressure on gold has been relatively muted since investors’ focus is on the Ukraine conflict, with any big developments likely to trigger sharp price swings.
“A comment like that would normally send gold significantly lower, like a $50 lower move, but the fact the Russia-Ukraine situation is on the forefront is keeping a floor on gold,” Haberkorn said.
“Rising gold exchange-traded fund holdings show that despite day-to-day price fluctuations, asset managers are moving back into gold to diversify and as a hedge against inflation and economic downturn,” Saxo Bank analyst Ole Hansen added.
(With files from Reuters)