Gold retreats as dollar, yields firm ahead of Fed verdict
Gold eased on Tuesday after climbing to an all-time high in the previous session as dollar and Treasury yields firmed, while traders positioned themselves for a potential U.S. interest rate cut decision by the Federal Reserve this week.
Spot gold fell 0.5% to $2,569.43 per ounce by 1:53 p.m. ET (1753 GMT) after scaling an all-time high of $2,589.59 on Monday.
U.S. gold futures settled 0.6% lower at $2,592.40.
The spotlight in the financial realm is on the Fed’s two-day policy meeting that concludes on Wednesday. Markets are now pricing in a 63% chance of a 50-basis-point cut versus 34% a week ago, according to the CME FedWatch tool.
The financial markets have priced in a bigger chance that the Fed will move more aggressively. This would be the Fed’s first rate cut since 2020.
“We are trending lower today due to rate pop across the yield curve as some people are worried that if the Fed goes 25 basis points tomorrow, there might be less incentive to buy gold, as suggested by a major bank,” said Bart Melek, head of commodity strategies at TD Securities.
Goldman Sachs on Monday said they see some tactical downside to gold prices under their economists’ base case of a 25 bps Fed cut on Wednesday and reiterated their long gold trading recommendation and price target of $2,700 per ounce by early 2025.
Lower interest rates reduce the opportunity cost of holding the non-yielding bullion.
“As the opportunity cost of holding gold decreases, we may see increased demand for gold-backed ETFs from asset managers, especially in the West,” Ole Hansen, head of commodity strategy at Saxo Bank, said in a note. [GOL/ETF]
Also weighing on safe-haven bullion, U.S. retail sales unexpectedly rose in August, suggesting that the economy remained on a solid footing through much of the third quarter.
Spot silver fell 0.2% to $30.71 per ounce after hitting a two-month high on Monday.
Platinum gained 0.2% to $982.30. Palladium jumped 3.5% to $1,113.94.