PRECIOUS-Gold retreats as higher Fed rate bets support dollar

BY Reuters | ECONOMIC | 09/27/23 05:57 AM EDT


Dollar at 10-month high as Treasury yields remain elevated


Kashkari: 40% chance of Fed needing 'meaningfully' higher rates


SPDR Gold Trust holdings at lowest since August 2019

(Updates prices as of 1117 GMT)

By Deep Kaushik Vakil

Sept 27 (Reuters) - Gold prices fell to the lowest in more than a month on Wednesday as the prospect of U.S. interest rates staying higher for longer boosted the dollar.

Spot gold dropped 0.5% to $1,892.00 per ounce by 1117 GMT, its lowest level since Aug. 22. U.S. gold futures also fell 0.5% to $1,910.60.

The dollar stood strong at a 10-month high against a basket of other major currencies, and Treasury yields, although retreating somewhat in European trading, remained near 16-year highs.

"The Fed has been indicating higher interest rates for longer for the past two months, but after oil prices started rallying and raising inflation risks, the market has started taking it seriously," said ANZ analyst Soni Kumari.

A "soft landing" for the U.S. economy is more likely than not, Minneapolis Fed President Neel Kashkari said on Tuesday, but there's also a 40% chance that the Federal Reserve will need to raise rates "meaningfully" to beat inflation.

Higher interest rates raise the opportunity cost of holding dollar-priced bullion, which does not yield any interest.

The higher-for-longer rate narrative seems to be overriding safe-haven flows for gold, IG market strategist Yeap Jun Rong said.

For fresh clues on interest rates, investors were waiting for the release of the U.S. personal consumption expenditures (PCE) index, the Fed's preferred inflation measure, due on Friday.

"If the inflation number falls, we could see some support coming to gold and the expectation of tightening monetary policy could dampen a bit," Kumari said.

Reflecting investor sentiment, holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, touched a more than four-year low.

Silver was 0.5% lower at $22.77 per ounce, having touched a 12-day low, while platinum fell 0.4% to $900.46. Palladium gained 1.1% to $1,237.26, on track to snap a four-session losing streak.

(Reporting by Deep Vakil and Swati Verma in Bengaluru; Editing by Shilpi Majumdar, Kirsten Donovan)

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