Gold slumps on dollar rally, Fed rate-hike worries

Aug 22 (Reuters) – Gold prices fell to near a one-month low on Monday amid sharp declines in precious metals due to a stronger dollar, with looming Federal Reserve interest rate hikes also denting bullion’s appeal.

Extending losses into a sixth session, spot gold was down 0.6% at USD 1,736.74 per ounce by 1:51 p.m. ET (1751 GMT) after hitting its lowest since July 27 earlier in the session. US gold futures settled down 0.8% at USD 1,748.4.

The dollar hit a fresh five-week high versus major currencies, making greenback-priced gold more expensive for overseas buyers.

Gold is under pressure from the dollar and market expectations that Fed Chair Jerome Powell will reinforce the US central bank’s hawkish stance in a speech at the Jackson Hole, Wyoming central banking conference later this week, said Daniel Ghali, commodity strategist at TD Securities.

Prices could dip below USD 1,700 after the Jackson Hole conference, Ghali added. Higher interest rates raise the opportunity cost of holding gold, which does not pay any interest.

According to economists in a Reuters poll, the Fed is likely to raise its interest rate by 50 basis points in September amid expectations US inflation has peaked and on growing recession worries.

In the short term, gold could face pressure again as the Fed is likely to raise rates further until the end of the year, but once the rate hike cycle comes to an end, gold should start to rise, Commerzbank said in a note.

According to data on Friday, speculators also cut their net long COMEX gold and net short silver position in the week to Aug. 16.

Spot silver fell 0.3% to USD 18.96 after touching its lowest in four weeks earlier in the session.

“Silver prices have been underperforming in the recent trading sessions, this reflects a slowing industrial demand for silver as well as deteriorating speculative appetite,” Ghali said.

Platinum dropped 2.3% to USD 875.42, while palladium sank 6.2% to USD 1,992.18.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Paul Simao, Bernadette Baum and Vinay Dwivedi)