Gold prices reached a two-week low on Friday, set for their most significant weekly loss in nearly eight months, as diminishing expectations for U.S. interest rate cuts took a toll on the market.
Spot gold saw a 0.21 percent increase to $2,334.21 per ounce, as of 5:11 GMT, after hitting its lowest since May 9 earlier in the session. Meanwhile, U.S. gold futures saw a 0.10 percent decline to $2,334.85.
Rate cut uncertainty
The recent decline in gold prices was largely influenced by the hawkish tone in the latest minutes from the U.S. Federal Reserve‘s May policy meeting. Policymakers expressed uncertainty about confidently cutting interest rates, a stance that has driven up Treasury yields and strengthened the dollar.
Gold is traditionally a hedge against inflation, but higher interest rates increase the opportunity cost of holding non-yielding assets like gold. The Fed’s policy response indicates that the central bank may maintain its benchmark policy rate at its current level, with discussions even hinting at possible further hikes. Traders are now increasingly skeptical that the Fed will lower rates more than once in 2024.
China’s central bank buying to limit losses
Despite the bearish sentiment from the Fed, some factors may limit the extent of losses in gold prices. Hence, Chinese reserve buying remains a significant tailwind. Although the pace of uptake by the People’s Bank of China slowed to 9 percent year-on-year in April from 11 percent at the end of 2023, the central bank continues to be a major source of demand, which could prevent major losses in gold prices.
Other precious metals
While gold prices have faced substantial declines, other precious metals have also been impacted, albeit less severely. Spot silver rose 0.4 percent to $30.21 per ounce. Platinum edged up 0.1 percent to $1,019.90, and palladium gained 0.3 percent to $971.80, with all three metals also on track for weekly declines.
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