Friday, February 3

Gold falls over 1% as dollar rises on hawkish Fed

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Gold prices retreated more than 1% on Thursday, falling to their lowest in a week, as the dollar strengthened after the US Federal Reserve signaled higher interest rates for a longer period.

Spot gold dropped 1.6% to $1,777.56 per ounce, as of 0948 GMT. US gold futures fell 1.7% to $1,787.60.

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“The tone was certainly very hawkish from the Fed in terms of the rate rise than some market participants expected and that has definitely spooked gold,” said independent analyst Ross Norman.

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“So again, we are seeing slightly exaggerated moves, but the broad theme is the dollar is up, interest rates are rising, and that’s a headwind for gold.”

The Fed raised interest rates by half a percentage point on Wednesday and projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023.

Following the statement, Fed Chair Jerome Powell said the US central bank will deliver more rate hikes next year and it was too soon to talk about cutting rates.

Gold is traditionally considered an inflation hedge but higher interest rates dim bullion’s appeal by increasing the opportunity cost of holding the non-yielding metal.

Making gold more expensive for other currency holders, the dollar was up 0.7% against its rivals.

“Broadly into 2023, I still favor gold to trade higher but near term into end-year, I won’t rule out any profit-taking or pullback in prices,” said OCBC FX strategist Christopher Wong.

Focus now shifts to rate-hike decisions from the Bank of England (BoE) and the European Central Bank (ECB) later in the day, with both expected to deliver a 50-basis point rate hike.

Elsewhere, silver dipped 3.5% to $23.07 per ounce, platinum lost 2.1% to $1,007.75 and palladium was down 1.5% to $1,888.20. (Reporting by Brijesh Patel and Ashitha Shivaprasad in Bengaluru; Editing by Eileen Soreng)