Gold price drops to near $2,000 on hawkish Fed comments

Gold fell to its lowest in a month on Wednesday following hawkish comments from a US Federal Reserve policymaker who tamed expectations of an imminent rate cut, sending both the dollar and Treasury yields higher.

Spot gold dropped 1.1% to $2,004.78/oz. by noon ET, its lowest in 2024 after starting the new year around the $2,065/oz. level. US gold futures were also down 1.1% to about $2,007.50/oz.

[Click here for an interactive chart of gold prices]

In the opposite direction, the US dollar index hovered at a one-month high following Fed Governor Christopher Waller’s comment that the central bank should not rush to cut rates until lower inflation can be sustained. Yields on the benchmark 10-year Treasury notes also gained.

“The markets are having doubts about interest rate cuts if the Fed can cut sooner than later, which is pressuring gold prices. With the dollar being strong and cuts taking time, it is hard for gold to hold a rally,” said Bob Haberkorn, senior market strategist at RJO Futures, in a Reuters note.

“However, geopolitical risk will keep providing a base to prices and hold them around $2,000,” he added.

Traders are now pricing in around a 61% chance of a rate cut in March, compared to around 73% before Waller’s comment, according to CME FedWatch tool, opens new tab.

While a March rate cut is less likely than before, the general expectation remains that the US central bank will begin lowering interest rates in 2024, boosting the long-term outlook for gold.

(With files from Reuters)