The Luster of Gold Dims with the Rise of the Dollar and Possible U.S. Interest Rate Hike

SadaNews - Gold continued its decline, a day after the recovery of the U.S. dollar and the possibility of rising interest rates pushed the metal below $4,000 an ounce for the first time since November.

The precious metal fell by as much as 0.9% to around $3,995, after giving up nearly 3% in the previous session. The U.S. dollar index rose 0.8% this week, making precious metals priced in U.S. dollars more expensive for buyers using other currencies. Silver also declined after a drop of about 7% on Wednesday, pushing it below $60 an ounce for the first time since December.

Increasing pressure on gold was felt as policymakers at the Federal Reserve indicated growing support for higher borrowing costs, with newly appointed Chairman Kevin Warsh adopting a hawkish tone at his first interest rate meeting last week. A more hawkish monetary policy makes precious metals less attractive compared to yield-bearing assets like Treasury bonds.

Christopher Wong, a strategist at Oversea-Chinese Banking Corp, said, "Gold is facing a tougher mix of re-pricing due to the Federal Reserve's hawkish stance, stronger real yields, and some technical damage after breaking below the psychological level of $4,000." He added, "This keeps the upward trends vulnerable to fading for now."

End of a Long Bull Run for Gold

The recent decline has ended a long bull run for gold. The metal had recorded double-digit gains in each of the past three years, more than doubling in value as central banks, fund managers, and individual investors rushed into this trade.

The momentum of that rally fizzled out in late January, shortly after the precious metal reached its all-time high near $5,600 an ounce. By June, it had fallen more than 20% from its recent peak, a threshold that traditionally indicates the beginning of a bear market. The outbreak of war between the U.S. and Iran was among the factors weighing on the metal's performance, raising energy prices and fueling inflation.

Another major driver of the previous gold rally, known as the "currency devaluation trade," where traders prefer assets like gold and Bitcoin over currencies exposed to excessive monetary policy, lost momentum as well. Enormous investments linked to artificial intelligence and the relatively favorable energy situation in the U.S. bolstered the dollar's appeal compared to energy-importing economies in Europe and Asia.

Nikki Shiels, head of metals strategy at trading and refining company MKS PAMP SA, wrote in a note that "the theme of American exceptionalism is overriding the theme of structural currency devaluation."

As gold prices fell, several major banks lowered their price forecasts last week. While the adjusted targets imply that prices will rise from current levels, Wall Street analysts are clearly less optimistic than before.

Goldman Sachs Group Inc cut $500 from its price forecast, now seeing the precious metal ending the year at $4,900 an ounce, while Deutsche Bank AG reduced its fourth-quarter estimate by 17%.

Silver Prices

Silver prices were recorded near $57 an ounce.