Gold prices declined on Friday as the US dollar and Treasury yields rose after Federal Reserve Chair Jerome Powell indicated that the central bank would continue to raise interest rates gradually to keep inflation under control.
Powell’s speech at Jackson Hole
Powell delivered his speech at the annual economic symposium in Jackson Hole, Wyoming, where he said that the Fed would “proceed carefully as we decide whether to tighten further” but also made clear that the central bank has not yet concluded that its benchmark interest rate is high enough to ensure that inflation returns to the 2% target.
He said that the Fed’s monetary policy stance was “appropriate” given the strong economic growth and low unemployment, but also acknowledged the risks from trade tensions, emerging market turmoil and geopolitical uncertainty.
He added that the Fed would continue to rely on data and not on forecasts or models to guide its decisions, and that it would be flexible and ready to adjust its policy if needed.
Market reaction to Powell’s speech
The market interpreted Powell’s speech as a sign that the Fed was not in a hurry to raise rates aggressively, but also not willing to pause or reverse its tightening cycle. The dollar index, which measures the greenback against a basket of six major currencies, rose 0.4% to 95.35. The 10-year Treasury yield, which moves inversely to bond prices, also climbed 0.4% to 2.82%.
These factors weighed on gold, which does not bear any interest and becomes less attractive when the opportunity cost of holding it increases. Spot gold fell 0.6% to $1,906.50 per ounce by 11:30 a.m. EDT (1530 GMT). US gold futures settled 0.4% lower at $1,939.90.
Gold was also pressured by a lack of physical demand from major consumers like China and India, where higher domestic prices and a weak currency deterred buyers.
Other precious metals
Among other precious metals, silver rose 0.1% to $24.15 per ounce, palladium dropped 1.5% to $1,222.22 and platinum gained 0.9% to $942.20.
Silver and platinum were on track for their best week since July 14, while palladium was set for a second consecutive weekly decline.
Silver benefited from its industrial demand amid optimism over US-China trade talks, while platinum found some support from supply disruptions in South Africa.
Palladium, however, suffered from a slowdown in global auto sales, as the metal is mainly used in catalytic converters for gasoline vehicles.
Outlook for gold
Analysts said that gold could face more headwinds in the near term as the Fed was likely to raise rates again in September and December, and as the US economy remained resilient despite trade disputes.
However, they also said that gold could find some support from safe-haven demand if trade tensions escalated or if geopolitical risks increased.
They also said that gold could benefit from a weaker dollar in the longer term, as the US fiscal deficit widened and as other central banks started to normalize their monetary policies.