Gold Prices Decline Following Federal Reserve Official's Rate Hike Forecast
Gold Declines as Traders Increase Bets on Fed Tightening
(Bloomberg) -- Gold prices slipped as much as 1.1% on Friday as traders ramped up bets on Federal Reserve monetary tightening following a warning from Governor Christopher Waller that the Iran war's energy shock could fuel inflation. Bullion prices declined as bond yields and the US dollar climbed.
The warning from Governor Waller suggests that the central bank's next interest-rate move is just as likely to be an increase as a cut. This shift in sentiment has led traders to fully price in a quarter-point rate hike by December for the first time. Higher rates typically weigh on gold as it pays no interest.
Meanwhile, US consumer sentiment fell in May to a record low, and long-term inflation expectations worsened notably due to the Middle East conflict. The University of Michigan's final May sentiment index declined to 44.8 this month from 49.8 in April, according to the survey released Friday. Consumers expect prices to rise an annualized 3.9% over the next five to 10 years, up from 3.5% in April and the highest in seven months.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
Bullion has traded within a fairly narrow range since falling sharply in the early days of the Iran war, as investors weigh higher rates against the prospect of a high-inflation, low-growth scenario. Bullion is down about 15% since the conflict began in late February.
Spot gold fell 0.8% to $4,508.75 an ounce as of 3:47 p.m. in New York. Silver declined 1.4% to $75.61 an ounce. Platinum and palladium also fell. The Bloomberg Dollar Spot Index, a gauge of the US currency, rose 0.1%.
| Market | April | May | Change |
|---|---|---|---|
| US Consumer Sentiment Index | 49.8 | 44.8 | -9.0 |
| Long-term Inflation Expectations | 3.5% | 3.9% | +0.4% |
President Donald Trump has stressed that he wants Kevin Warsh to independently lead the Federal Reserve, as he looked to downplay investor concern that he would pressure the new central bank chief on policy decisions. Warsh was sworn into office Friday in a White House ceremony as the 17th chair of the Fed.
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
Investor Takeaway
Investors should be cautious of potential rate hikes and their impact on gold prices.
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