Gold flirts with bear market after rate hikes batter bullion

GOLD sank to the lowest level since the early days of the pandemic, caught up in a broad selloff after a slew of central banks followed the Federal Reserve in raising interest rates to cool inflation.

Bullion flirted with slipping into a bear market, closing nearly 20 per cent below the all-time high reached in March amid a broad retreat in everything from commodities to stocks as the dollar climbed to a record. Investors shed risky assets for cash after the UK’s economic plan reignited concerns that central banks’ aggressive interest-rate hikes may lead to a recession.

Weakness in bullion is “very likely to persist” due to “monetary tightening that makes gold costlier to hold,” said Gnanasekar Thiagarajan, director at Commtrendz Risk Management Services. “However, recession fears and any escalation in the Russia and Ukraine conflict could support prices.” 

Central banks in Switzerland, Norway and Britain followed the Fed’s lead in announcing interest-rate hikes to curb price increases. Gold, which doesn’t bear interest and is priced in the US currency, usually has a negative correlation with the dollar and rates.

Outflows from exchange-traded funds have continued, with holdings now close to the lowest this year. US business activity contracted in September for a third straight month, though at a more moderate pace as a pickup in orders and a further softening of inflation allayed concerns of a more-pronounced pullback.

Spot gold declined 1.6 per cent to US$1,643.94 an ounce, capping a second weekly loss. Bullion for December delivery fell 1.5 per cent to settle at US $1,655.60 on the Comex. The Bloomberg Dollar Spot Index climbed 1.3 per cent to a record high. Silver, platinum and palladium all tumbled.

SEE ALSO

Oil plunges to 8-month low on strong dollar, recession fears

Gold flat as firm dollar, US rate hike dent appeal

DECODING ASIA

Navigate Asia in
a new global order

Get the insights delivered to your inbox.

Money managers became the most bearish on gold in almost 4 years, boosting their net-short position in Comex futures and options by 22,834 contracts in the week through Sep 20, according to US government data. BLOOMBERG