Gold prices plunge as Fed chief boosts rate-hike expectations

Tehran - BORNA - Spot gold dropped 2.9% to $4,567.23 an ounce, its lowest level since Aug. 20. US gold futures also fell 2.9% to settle at $4,529.90 an ounce.

The precious metal retreated further from Tuesday’s three-month high of $4,696.18 and ended the week down 2.9%.

Independent metals trader Tai Wong said gold came under heavy pressure after Warsh stressed that inflation had not declined meaningfully and that the Federal Reserve still had work to do.

His remarks prompted traders to raise their bets on a September rate increase, bringing the perceived probability of a hike close to that of no change.

Warsh said the US central bank would still have work to do if policymakers were not confident that underlying inflation was on a path back toward the Fed’s 2% target.

The comments marked his clearest indication yet that higher interest rates may be needed to contain price pressures.

According to CME Group’s FedWatch tool, traders now see a 58% probability of a Federal Reserve rate hike in September, up from 36% before Warsh’s remarks. They also price in an 89% chance of an increase by December.

Although gold is traditionally viewed as a hedge against inflation, higher interest rates tend to reduce the appeal of the non-yielding asset.

The US dollar rose to its highest level in more than a week, making dollar-denominated gold more expensive for buyers using other currencies.

According to Reuters, gold discounts in India fell sharply over the past week amid market speculation that the government could reconsider a recent increase in import tariffs and as demand weakened significantly.

Among other precious metals, spot silver fell 3.5% to $66.81 an ounce, while platinum declined 0.6% to $1,835.07.

Palladium, however, rose 5.3% to $1,422.25 an ounce.

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