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PRECIOUS-Gold slips toward 2-1/2-month lows as Fed rate hike looms

reuters.com · 05/02/2022 06:23
PRECIOUS-Gold slips toward 2-1/2-month lows as Fed rate hike looms

Federal Open Market Committee due to meet May 3-4

Sentiment in gold market downbeat at the moment - analyst

A rate hike of 50 bp should come as no surprise - Commerzbank

Recasts, adds comment, updates prices

By Eileen Soreng

- Gold prices slipped 1% toward 2-1/2-month lows on Monday as investors braced for a large interest rate hike by the U.S. Federal Reserve, as it seeks to contain soaring inflation, denting the zero-yield bullion's appeal.

Spot gold XAU= fell 0.9% to $1,880.01 per ounce by 1000 GMT, hovering near last week's low of $1,871.81 an ounce. U.S. gold futures GCv1 dropped 1.6% to $1,880.70.

"Calls for more and more rate hikes by Fed officials has been setting the tone in the gold market lately, and that's also pushed up the yields on 10-year TIPS (Treasury Inflation-Protected Security)... this is providing the biggest headwinds for gold taken together with a quite a strong U.S. dollar," said Julius Baer analyst Carsten Menke.

The U.S. central bank's Federal Open Market Committee is scheduled to begin its two-day meeting on May 3 and announce its decision the next day.

U.S. policymakers look set to deliver a series of aggressive rate hikes at least until the summer to deal with rapid inflation and surging labour costs, even as two reports released on Friday showed tentative signs that both may be cresting. nL2N2WR1WL

A rate hike of 50 basis points on Wednesday evening should come as no surprise, nor weigh additionally on the gold price, especially as Fed Chair Jerome Powell has more or less announced this in advance, Commerzbank analysts wrote in a note.

Gold is highly exposed to interest rates as higher rates lift the opportunity cost of holding non-yielding assets and strengthen the dollar in which gold is priced, making bullion expensive for holders of other currencies.

The dollar held near a 20-year high, while benchmark 10-year U.S. Treasury yields rose towards recent multi-year peaks. US/ USD/

Spot silver XAG= fell 0.3% to $22.68 per ounce, palladium XPD= slid 2.2% to $2,269.68, while platinum XPT= edged 0.4% higher to $935.00.

(Reporting by Eileen Soreng and Swati Verma in Bengaluru; Editing by Vinay Dwivedi)

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