Recorded at 3:05 am on August 29 (Vietnam time), world gold prices were listed around the threshold of 4,459.6 USD/ounce, a sharp decrease of 147.2 USD compared to the previous day. The precious metal experienced a strong sell-off session after the market received new signals about the monetary policy orientation of the US Federal Reserve (Fed).
Downward pressure appeared clearly after the Fed Chairman's speech at the annual conference in Jackson Hole. Instead of focusing on the risk of a weakening labor market, this message focused more on the task of controlling inflation.
According to the assessment given, the US labor market in general is still suitable for the state of full employment. Most people who want to work are still having or finding jobs. Meanwhile, price movements are seen as much more worrying.
The Personal Consumption Expenditure Price Index (PCE) - a measure of inflation that the Fed is particularly interested in - increased by 3.7% in 12 months. Notably, the increase in the last 6 months if converted annually is up to 4.1%. These figures are still far higher than the Fed's 2% inflation target.
The message from Jackson Hole shows that the Fed needs to make sure that core inflation is actually returning to its target at a sufficiently fast pace. If this does not happen, the US monetary regulator still has a lot of work to do.
Although not making specific commitments on interest rate decisions at the next meeting, the Fed's emphasis on inflation risk quickly tilted the market back towards the possibility of policy tightening.
Immediately after the speech, expectations of the Fed raising interest rates at the September meeting increased from about 36% to nearly 60%. The possibility of interest rate cuts was almost excluded from market forecasts.
This is a strong hit for gold prices. From the above 4,600 USD/ounce zone, the precious metal continuously lost important support levels. Selling pressure increased rapidly as investors adjusted expectations that US interest rates could remain at a high level for a longer time, even the Fed may continue to raise interest rates if inflation does not cool down.
The USD also benefited from a tougher monetary policy outlook. Meanwhile, the yield of US government bonds with a 2-year term - a particularly sensitive asset to Fed interest rate expectations - increased by about 9 basis points. The euro fell sharply against the USD, while the Japanese yen continued to weaken.
Both the USD and bond yields are unfavorable for gold. When the yields of profitable assets are higher, the opportunity cost of holding gold - non-interest assets - also increases.
One noteworthy point is that even if the Fed keeps interest rates unchanged in September, it may not necessarily mean a peaceful signal. The agency can still keep interest rates but at the same time signal the possibility of raising interest rates in subsequent meetings.
The Fed members' interest rate forecast chart at the September meeting is therefore of particular interest to the market. If the forecast shows another or even two interest rate hikes before the end of the year, pressure on gold may not end soon. Besides monetary policy, the market also faces pressure from the US fiscal situation.
However, gold still has long-term supporting factors. Gold purchases by foreign central banks continue to show that the precious metal plays a significant role in reserves, especially when some countries are seeking diversification away from US government bonds.
In the immediate future, gold price movements will greatly depend on interest rate expectations. After a decrease of more than 147 USD/ounce in just one day, it can be seen that market sentiment has changed significantly. If the expectation of the Fed raising interest rates continues to strengthen, selling pressure on gold may continue to last.
The article only updates market developments, not investment recommendations. Investors need to be cautious in the face of strong market fluctuations and carefully consider risk factors before making decisions.
