Gold subdued by Fed’s higher-for-longer interest rate stance

Sept 25 – Gold prices slipped on Monday as the dollar and US Treasury yields firmed on the Federal Reserve’s higher-for-longer stance on interest rates.

Spot gold was down 0.5% at USD 1,915.61 per ounce by 2:15 p.m. EDT (1815 GMT), while US gold futures settled 0.5% lower at USD 1,936.6.

“Slightly hawkish Fed and global central banks are currently suppressing gold,” said Everett Millman, chief market analyst at Gainesville Coins.

Millman forecast prices to trade between USD 1,910 and USD 1,950 for the rest of this quarter.

Fed officials warned on Friday of further rate hikes even after voting to hold the benchmark rate steady last week, with three policymakers saying they remain uncertain about whether the inflation battle is over.

Bullion tends to underperform when higher interest rates boost yields on rival safe havens like US bonds.

The dollar index was up 0.3%, while benchmark 10-year Treasury yields were near a 16-year peak.

“My baseline forecast is that gold will reach a new all-time high in 2024 if we see at least a mild recession in the global economy. If we get a recession, the Fed will be forced to cut rates sooner,” Millman added.

Market focus now shifts towards the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, which is scheduled to be released on Sept. 29.

Mirroring investor sentiment, holdings in the SPDR Gold Trust GLD, the world’s largest gold-backed ETF, fell to their lowest level since Jan. 2020.

Spot silver fell 1.9% to USD 23.08 per ounce, platinum shed 1.4% to USD 912.99 and palladium dropped 1.5% to USD 1,230.73.

Lower Chinese palladium imports as a result of likely destocking could be a factor weighing on prices, alongside the ongoing substitution from palladium to platinum in auto catalysts, UBS wrote in a note.

(Reporting by Ashitha Shivaprasad and Harshit Verma in Bengaluru; Editing by Sharon Singleton and Shweta Agarwal)