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Gold prices saw a sharp decline on Thursday in response to the Federal Reserve’s warning of prolonged higher interest rates. The precious metal’s future value has left investors with reduced expectations for the months ahead.
Gold Futures Plummet
The most traded contract on New York’s Comex, Gold futures expiring in December, took a hit, sliding by 1%, or nearly $20, to $1,948.05 per ounce. This downturn reflects traders’ anticipation of significantly lower gold prices, especially amidst an outlook of rising interest rates.
Spot Gold Remains Subdued
Meanwhile, spot gold had a relatively muted reaction to the Federal Reserve’s announcement, falling by 0.1% to $1,928.12 per ounce as of 23:50 ET (03:50 GMT). Other precious metals experienced substantial losses as well, with platinum futures down by 0.6% and silver plummeting by nearly 2%.
Fed Anticipates Prolonged High Rates
In a widely anticipated move, the central bank held interest rates steady on Wednesday. However, Chair Jerome Powell surprised the market with his hawkish tone, suggesting that recent inflation increases and labor market strength would allow the Fed to maintain higher interest rates. Powell even hinted at the possibility of at least one more rate hike later this year.
Higher Rate Forecast
Furthermore, Powell’s projections indicate that U.S. interest rates could hover around 5.1% through 2024. This forecast contradicts market expectations, which had priced in four potential rate cuts for next year. The Fed’s confidence in the resilience of the U.S. economy has downplayed concerns of an impending recession, diminishing the demand for gold as a safe haven.
Impact of Higher U.S. Rates
The prospect of higher, long-term U.S. interest rates is expected to exert significant downward pressure on gold in the months ahead. Rising rates elevate the opportunity cost of investing in non-yielding assets, making gold less appealing to investors.
Copper Sees Modest Rise, Weekly Decline
Shifting to industrial metals, copper prices inched up slightly following significant losses earlier in the week. Copper futures rose by 0.2% to $3.7453 per pound, although they remained down by 1.5% for the week.
Copper found support from signs of the U.S. economy’s resilience, which could bolster industrial activity and copper demand in the coming months.
China’s Stimulus Measures in Focus
Market attention also focused on potential stimulus measures from China, as the People’s Bank of China (PBOC) expressed readiness to provide more monetary support if necessary. However, the PBOC opted to keep its loan prime rates unchanged on Wednesday, as it grapples with the delicate task of balancing economic growth and the yuan’s stability.
Disclaimer: Please note that this article serves solely for informational purposes and should not be construed as financial advice. We strongly advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.
