Gold hits near two-week low on Fed chief’s hawkish stance

[BENGALURU] Gold fell on Monday (Aug 31) to its lowest in nearly two weeks after US Federal Reserve chair Kevin Warsh signalled that interest rate hikes may be needed to ease price pressures, while escalating Middle East tensions fuelled inflation fears.

Spot gold fell 0.8 per cent to US$4,417.04 per ounce by 0406 GMT, hitting its weakest level since Aug 19. Prices dropped more than 3 per cent on Friday.

US gold futures declined 1.4 per cent to US$4,466.80.

“Gold is still licking its wounds after the hawkish tone struck by Warsh at Jackson Hole. US military action in Iran has put upward pressure on oil prices, and this has added to gold’s woes from an inflation standpoint,” said Tim Waterer, chief market analyst at KCM Trade.

Though viewed as a hedge against inflation, gold typically loses appeal in a rising interest rate environment as it does not yield interest.

The Fed will “have work to do” if policymakers do not get the confidence they need that inflation is heading down to 2 per cent, Warsh said on Friday at the Jackson Hole economic symposium, coming closer than he has to acknowledging rate hikes may be needed.

Markets currently see a 60 per cent chance of a Fed rate hike in September, according to the CME FedWatch tool.

Iran’s energy hub of Kharg Island is being blown to smithereens, US President Donald Trump said on social media, after forces hit two rocket launchers on another island in the first known American strikes on the Islamic republic since late July. Oil prices were up more than 2 per cent.

A series of US labour market reports is due this week, including job openings, the ADP employment report, weekly jobless claims and nonfarm payrolls (NFP) data.

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“NFP has the potential to either extend gold’s post-Jackson Hole softness or provide the catalyst for a short-covering bounce,” Waterer said.

Spot silver fell 0.4 per cent to US$66.10, platinum declined 1.3 per cent to US$1,797.03 and palladium slipped 2.5 per cent to US$1,386.96.

BMI said silver prices were likely to stay near current levels, supported by steady investment demand and constrained mine supply, while easing physical tightness and softer demand would limit further gains. REUTERS