Gold prices retreat as U.S. Fed signals tighter monetary policy

© Reuters.

Gold prices experienced a dip on Thursday, influenced by the U.S. Federal Reserve's hardened hawkish policy stance. This led to a stronger U.S. dollar and higher bond yields, which further discouraged the buying of non-interest-paying bullion. Spot gold slid by 0.3% to $1,924.68 per ounce, and U.S. gold futures fell by 1.1% to $1,944.90.

This retreat in gold prices occurred after spot gold reached its highest level since September 1 on Wednesday, prior to the U.S. Fed revising its economic projections with prolonged rate warnings. The U.S. dollar index rose by 0.4% to its highest since March 9, while two-year Treasury yields ascended to a 17-year high following the Fed's decision to maintain steady interest rates but adopt a stricter monetary policy stance.

The Federal Reserve outlined a more rigorous policy path in their ongoing battle against inflation, which they now anticipate will extend into 2026. However, they expressed confidence in their ability to lower inflation without damaging the economy or causing significant job losses.

In other central bank actions, the Bank of England is set to announce later today whether it will pause its series of interest rate hikes that began in December 2021, following indications that it had made progress in addressing Britain's high inflation problem.

Meanwhile, the SPDR Gold Trust (P:GLD), the world's largest gold-backed exchange-traded fund, reported a 0.1% decrease in its holdings to 878.25 metric tons on Wednesday. In contrast, Russia's central bank announced that the country's gold reserves were at 75 million troy ounces as of the start of September.

Other precious metals also saw declines with spot silver falling 0.7% to $23.07 per ounce, platinum slipping 1.1% to $918.79, and palladium dropping 1.8% to $1,251.21.

The Federal Reserve's next monetary policy meeting is scheduled for October 31-November 1, with a 73.6 percent chance rates will remain unchanged and a 26.4 percent chance of a quarter point rate increase, according to CME Group's (NASDAQ:CME) FedWatch Tool.

Elsewhere in the world, the Swiss National Bank held rates unchanged but warned that further increases might be necessary. Sweden's Riksbank raised borrowing costs by a quarter point and suggested more may be needed to bring inflation back to its 2 percent target. Norway's central bank increased its benchmark interest rate by 25 basis points and signaled another rate hike in December to curb inflation.

Finally, in economic releases, reports on U.S. weekly jobless claims, current account data for the second quarter, U.S. Consumer Board's leading index for August and U.S. existing home sales figures for August are due for release in the New York session.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.