Gold steadies after 2% surge as Fed rate bets ease
Spot gold held near US$4,480 on Friday after Waller's comments cut the implied chance of a September Fed rate rise to 54% from 62%
- Gold's price stabilized after surging more than 2%, a move driven by shifting expectations for future Federal Reserve interest rates.
- The change in sentiment was prompted by comments from Fed Governor Christopher Waller, which led traders to scale back their bets on a September rate hike.
- The prospect of less aggressive rate hikes supported gold by causing a drop in the U.S. dollar and Treasury yields, reducing the opportunity cost of holding the metal.
Gold steadied near US$4,480 an ounce on Friday after surging more than 2% in the previous session, with comments from Federal Reserve Governor Christopher Waller prompting traders to scale back expectations of a September interest-rate rise.
Spot gold was up 0.1% at US$4,478.17 an ounce at 8.22am Singapore time on Friday (September 4). The metal was heading for a modest weekly gain after a volatile week that included a sharp fall on Tuesday and a subsequent rebound.
On Thursday, spot gold jumped 2.3% to US$4,488.54 an ounce by 2.04pm US Eastern time, after touching its highest level since August 28. US gold futures settled 2.8% higher at US$4,539.90.
Traders saw a 54% probability that the Fed would raise rates at its September 15–16 meeting, down from about 62% before Waller’s comments, according to the CME FedWatch Tool.
Friday market snapshot
- Spot gold rose 0.1% to US$4,478.17 an ounce
- Spot silver gained 0.1% to US$66.90 an ounce
- Platinum and palladium were little changed
- The Bloomberg Dollar Spot Index was flat after falling 0.6% on Thursday
Waller shifts rate expectations
Waller said he would be inclined to support keeping interest rates unchanged at the Fed’s next policy meeting if forthcoming economic data confirmed that inflationary pressures were cooling.
“I think traders at the moment are looking at the Fed being less aggressive with rates,” said Bob Haberkorn, senior market strategist at StoneX.
Haberkorn said more traders were accepting that the Fed might raise rates once more, but could have limited scope for further increases after that.
Lower yields and weaker dollar support gold
Falling US Treasury yields reduced the opportunity cost of holding gold, which pays no interest. The weaker dollar also made dollar-denominated bullion less expensive for buyers using other currencies.
Gold had fallen to its lowest level since August 7 on Wednesday before closing more than 1% higher, as the dollar index retreated from an almost three-week peak and Treasury yields eased from multiyear highs.
The metal had come under pressure earlier in the week as higher yields and a firmer dollar increased its holding cost.
Although gold is commonly regarded as a hedge against inflation, higher interest rates generally reduce its appeal compared with income-generating assets.
Other precious metals rally
Other precious metals also recorded strong gains on Thursday:
- Spot silver rose 2.8% to US$67.13 an ounce
- Platinum advanced 4.2% to US$1,830.28 an ounce
- Palladium surged 5.9% to US$1,426.75 an ounce
Oil prices were heading for a fourth consecutive daily gain as US attacks on Iran and renewed Israeli threats towards Tehran raised concerns about possible disruptions to Middle East supplies.
Investors were awaiting Friday’s closely watched US non-farm payrolls report, followed by the August consumer and producer price inflation reports next week, for further indications of the Fed’s likely policy direction.
