Gold Reclaims $4,200 Level Despite Fed Hawkishness
Gold jumped over 1% to approach $4,200 as the dollar and bond yields declined, heading toward weekly gains of around 1% ahead of the upcoming interest rate decision.
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Gold rose more than 1% to approach the $4,200 per ounce level as the dollar, US Treasury yields, and oil prices declined. US futures climbed by a similar percentage, putting the yellow metal on track for weekly gains of nearly 1%.
Spot gold recorded a gain of 1.5% to $4,193.94 per ounce by 9:54 AM Eastern Time, while futures increased by 1.5% to $4,218.97. Later in the session, spot contracts rose 1.3% to $4,186.04, and December futures rose 1.3% to $4,211.20. Gold closed at $4,205.40, up 1.48%.
The rally was not limited to gold; silver jumped 3.08% to $61.55 per ounce after being up 2.4% at $60.80, while platinum rose 3.6% and palladium gained 2.5%. The yield on 10-year Treasury bonds fell to around 5.24% from 5.33%, and the VIX volatility index dropped 3.70% to 14.84 points, while West Texas Intermediate crude traded near $92 and Brent above $104.
Support came after US President Donald Trump stated that Washington would not strike Iran before the midterm elections, easing oil prices. Conversely, St. Louis Federal Reserve President Alberto Musalem said another rate hike is necessary to reach 2% inflation. The CME FedWatch tool showed an 18% to 19% probability of a rate hike in October and an 82% to 84% chance of a quarter-point hike by December. ING analysts warned that the dollar's decline could be short-lived given the weakening resilience of bond markets and the Fed's hawkish stance.
What Do These Terms Mean?
US Federal Reserve: The central bank of the United States, which sets interest rates that directly affect gold and dollar prices.
Treasury Bond Yields: The return earned by a US government bondholder; a rise increases the opportunity cost of holding non-yielding gold.
Futures Contracts: Agreements to buy or sell a commodity at a predetermined price for delivery at a future date, representing the most traded instrument in metals.
VIX Volatility Index: A measure of US stock market volatility expectations, known as the fear index, as it rises when investors are fearful and falls when risk appetite increases.
CME FedWatch Tool: A tool from the Chicago Mercantile Exchange showing traders' expectations for the probability of US interest rate changes at each meeting.
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