Gold Slips Under Dollar and Interest Rate Pressure

Gold prices retreated during yesterday’s trading to their lowest level in over two weeks, weighed down by the US dollar’s rise to a 19-month high, after stronger-than-expected US inflation data and comments from Federal Reserve officials regarding next month’s interest rate path bolstered the greenback. Spot gold fell 0.2% to $3,981.49 per ounce, after earlier touching its lowest level since November 4, while US December gold futures dropped 0.3% to $3,987.50.

The dollar climbed to a 19-month peak against a basket of major currencies, making the US-dollar-denominated precious metal more expensive for holders of other currencies and adding pressure to its prices.

Ilya Spivak, head of global macroeconomics at Tast Life, said the gold market experienced a notable decline in recent days following the release of US inflation data and rising expectations for rate hikes. However, he noted that markets are still struggling to build on this trend as prices approach the $4,000-per-ounce level, which he described as a critical threshold.

Although gold is traditionally viewed as a hedge against inflation, higher interest rates increase the opportunity cost of holding it as a non-yielding asset, reducing its appeal to investors.

Markets are awaiting the release of the US Producer Price Index on Friday, seeking additional signals on the trajectory of inflation and monetary policy.

In a more balanced assessment, analysts at OCSB Bank said risks to gold prices remain mixed in the near term, given the continued influence of oil prices, bond yields, and the dollar on its movements. They added that while the macroeconomic environment has become less supportive of the yellow metal, this does not lead them to adopt a negative outlook on its medium-term prospects.

In other precious metals markets, palladium rose 1% in spot trading to $1,037.25 per ounce.