World gold prices continued to face pressure in the morning trading session of August 31, as the market still reacted to tough signals from the US Federal Reserve (Fed) about the fight against inflation.
As of 9:36 am Vietnam time, spot gold prices fell 1.06% to 4,407.65 USD/ounce. Meanwhile, December gold futures fell 1.65%, to 4,455.19 USD/ounce.
The current decline continues to a strong sell-off session last weekend. Gold prices fell more than 3% in the 28th session after Fed Chairman Kevin Warsh signaled that the US central bank still needs to act if inflation does not return to the 2% target.
This message quickly affected interest rate expectations. The market currently assesses more than 50% of the possibility of the Fed raising interest rates at the September meeting, instead of expecting policy easing as before.
High interest rates are often detrimental to gold because precious metals do not generate yields. When bond yields and gold holding opportunity costs increase, the attractiveness of this non-performing asset tends to decline.
In addition, the USD is also a noteworthy factor. The strong increase in the greenback in the previous session has put more pressure on gold, because the precious metal valued in USD has become more expensive for investors using other currencies.
However, the outlook for gold has not completely turned negative.
According to Nicky Shiels, Head of Metal Research and Strategy at MKS PAMP SA, the policy of the US Treasury Department and the Fed is creating a tug-of-war in the market. While the Fed maintains a tough stance on inflation, moves from the Treasury Department may continue to support cash flow into gold.
Notably, the US Treasury Department's bond repurchase in September is expected to impact liquidity and the bond market. In that context, the need to defend against fiscal and monetary risks can still create support for precious metals.
After rising to 4,696.18 USD/ounce, the highest level in more than 3 months, gold prices have fallen sharply and are currently retreating to the 4,400 USD/ounce zone. This development shows that the previous upward momentum has suffered significant damage, and opens up the possibility that the market will continue to fluctuate strongly in the coming sessions.
On the precious metals market, spot silver prices fell 0.82%, to 65.84 USD/ounce, platinum prices fell 1.05%, to 1,804.05 USD/ounce. Meanwhile, palladium prices fell the most in the group, down 2.79%, to 1,406.50 USD/ounce.
The precious metal market this week will continue to focus on US economic data and Fed officials' statements to determine the direction of monetary policy.
For gold, the 4,400 USD/ounce zone is becoming an important milestone after a sharp decline at the end of the week. If this zone is maintained, the precious metal may find buying power again. Conversely, breaking through the support zone will increase the risk of deeper correction after the price just experienced a strong increase to nearly 4,700 USD/ounce.
