Gold near its lowest since 2020 as investors brace for supersized rate hike

Bengaluru — Gold prices on Wednesday lingered near their lowest level since April 2020, as investors prepared for the likelihood of another supersized interest-rate hike from the Federal Reserve in its effort to tackle inflation.

Spot gold was flat at $1,663.68 per ounce, as of 3.24am GMT. Earlier in the day, bullion hovered close to a 2-1/2-year low touched last week. US gold futures were also trading flat at $1,671.90.

The Fed will release its policy decision at 6.00pm GMT on Wednesday, followed by chair Jerome Powell’s press conference. Rate futures traders are pricing in an 81% chance of another 75-basis-point (bps) hike and a 19% probability of a 100 bps increase.

“The market wants the Fed to rip the Band-Aid off, so it can have clarity as to the future state of rate decision-making and the direction for the broader economic outlook,” said Michael Langford, director at corporate advisory firm AirGuide.

“For gold presently, the market is treading water until the Fed policy decision and then will likely respond with a heightened level of volatility before more likely re-trending positively as investors seek to put money to work.”

While gold is considered an inflation hedge, rising interest rates increase the opportunity cost of holding the non-yielding asset and bolsters the dollar, in which the bullion is priced. The dollar index hovered close to a two-decade high marked earlier this month, while the benchmark 10-year treasury yield held close to an over 11-year peak scaled on Tuesday.

Indicative of sentiment, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund (ETF), fell 4.63 tonnes on Tuesday, their biggest one-day outflow since July 18.

“It seems unlikely that gold ETF inflows will sustainably rebound until traders crystallise a turn in the Fed tightening cycle and/or there is consensus on a US/global recession,” analysts at Citi Research said in a note.

Spot silver edged 0.2% lower to $19.28 per ounce, platinum rose 0.3% to $925.31 and palladium fell 1.1% to $2,144.91.