World gold prices plummeted more than 3% in the last trading session of the week, under pressure from a stronger USD and expectations that the US Federal Reserve (Fed) could raise interest rates in September. The sharp decline took place after Fed Chairman Kevin Warsh's speech at the Jackson Hole seminar.
As of 4 am on August 29 Vietnam time, spot gold prices closed down 3.19% to 4,455.02 USD/ounce. December gold futures fell 3.43%, to 4,504.10 USD/ounce.
The decline caused gold prices to move significantly away from the 3-month high set earlier this week. Previously, the precious metal had risen to 4,696.18 USD/ounce on August 26.
The latest developments show that the gold market has reversed sharply in just a few sessions. After benefiting from the weakening USD and concerns about the US fiscal situation, the precious metal is under strong selling pressure as interest rate outlook changes.
According to Reuters, at about 1:44 PM on August 28 US time, spot gold prices fell 2.9%, to 4,567.23 USD/ounce - the lowest level since August 20. Gold futures for December delivery also fell 2.9%, to 4,529.9 USD/ounce.
The focus of the market is Fed Chairman Kevin Warsh's speech at Jackson Hole. He believes that the Fed will have to act further if policymakers do not believe that core inflation is returning to the 2% target.
This message quickly changed investors' expectations. According to the CME FedWatch tool, the market currently assesses the probability of the Fed raising interest rates in September at 58%, a sharp increase compared to 36% before Mr. Warsh's statement. The probability of raising interest rates in December also increased to 89%.
High interest rates are often detrimental to gold because the precious metal does not generate income from interest rates. As yields and interest rates increase, the opportunity cost of holding gold also increases, reducing the attractiveness of this asset.
Mr. Tai Wong - independent analyst - said that gold is under great pressure after Mr. Warsh emphasized that inflation has not decreased significantly and the Fed still has "work to do". According to him, this message could cause the market to continue to adjust expectations for the September meeting.
Besides the interest rate outlook, the USD also put pressure on gold prices. The greenback rose to its highest level in more than a week, making gold - valued in USD - more expensive for investors holding other currencies.
Despite a sharp decrease, gold prices are still supported by concerns about the US fiscal situation and demand from the official sector. However, the adjustment in the last session of the week showed that the precious metal is entering a sensitive phase after a previous strong rally.
Not only gold, other precious metals also fluctuated strongly. Spot silver price decreased by 4.15%, to 66.3915 USD/ounce. Platinum price decreased by 1.46%, to 1,823.20 USD/ounce. In the opposite direction, palladium increased sharply by 6.60%, to 1,427 USD/ounce.
On the market, investors will continue to monitor US economic data next week, especially the August jobs report. These figures may significantly impact expectations about the Fed's interest rate path and thereby decide the next developments of gold prices.
After a sharp increase and approaching the 4,700 USD/ounce mark, gold prices are facing profit-taking pressure and rapid changes in monetary policy expectations. The diễn biến of the USD, US bond yields and new signals from the Fed will continue to be key factors for the precious metal in the coming time.
