On Thursday, September 21, gold futures witnessed a decline as the robust performance of the U.S. dollar and the surging yields of U.S. government bonds exerted pressure on the precious metal market.
Gold futures dipped by $27.50, marking a 1.40% drop and concluding at $1,939.60 per ounce. Meanwhile, silver experienced a decrease of 14.90 cents, or 0.63%, ultimately settling at $23.687 an ounce. Platinum futures followed suit, with a decline of $17.70, equivalent to a 1.88% decrease, closing at $924.60 per ounce. Palladium also saw a drop of $11.8, or 0.9%, and concluded at $1,269 an ounce.
The dollar index, representing the U.S. dollar’s performance against a basket of six major currencies, climbed by 0.23% to reach 105.3620. Simultaneously, the yield on the 10-year U.S. government bond surged to 4.468% overnight.
The strengthening of the U.S. dollar renders gold contracts priced in dollars less appealing to investors holding other currencies. Moreover, the increase in U.S. bond yields escalates the cost of holding gold, as the precious metal does not provide any returns in the form of interest.
These developments came in the wake of the Federal Reserve’s decision to maintain short-term interest rates at the range of 5.25-5.50% during its meeting on Wednesday, September 20. However, in its policy interest rate projections (commonly referred to as the Dot Plot), Fed officials indicated their intention to raise interest rates once more by the end of this year, signaling just two interest rate cuts in 2024. This marks a significant departure from the Fed’s initial forecast, which had suggested more than two interest rate reductions for the following year. This shift implies that the Federal Reserve intends to keep interest rates elevated for a more extended period to combat inflation.
Furthermore, robust labor data in the United States further reinforced expectations that the Federal Reserve would maintain high-interest rates. The U.S. Department of Labor reported a decrease of 20,000 in initial jobless claims, down to 201,000 for the previous week. This figure is not only the lowest recorded since January 2023 but also falls below analysts’ projections of 225,000.
As the markets respond to these developments, the outlook for gold prices remains subject to the evolving dynamics of the U.S. economy, the U.S. Federal Reserve’s interest rate policies, and the performance of the U.S. dollar, all of which continue to exert significant influence on precious metal values.