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Gold wallows near 28-month low as Fed rate hike fears mount

A selection of gold jewellery displayed in the window of a store in the Dubai Gold Souk in Deira, in the United Arab Emirates.

Yui Mok | Pa Images | Getty Images

Gold prices languished near a 28-month low on Friday, heading for their worst week in two months, as prospects of aggressive rate hikes by the U.S. Federal Reserve lifted bond yields and took the shine off bullion.

Spot gold was flat at $1,663.09 per ounce, as of 0303 GMT, after hitting its lowest since April 2020 at $1,659.47 on Thursday. Prices were down 3.1% for the week so far.

U.S. gold futures fell 0.4% to $1,671.40.

“Currently, gold seems to be in an attempt to stabilize, coming after the heavy sell-off overnight,” said Yeap Jun Rong, a market strategist at IG.

“The bearish momentum could continue to drive a drift lower in prices until the FOMC (Federal Open Market Committee) meeting next week, where a hawkish Fed is the likely outcome.”

Benchmark 10-year U.S. Treasury yields hovered near their highest level since June, while the dollar was heading for a weekly rise against its rivals.

Markets are pricing in a 75-basis-point rate hike by the U.S. central bank at its Sept. 20-21 policy meeting after consumer prices unexpectedly rose in August.

Data on Thursday showed that U.S. retail sales unexpectedly rose in August as lower gasoline prices supported spending, while U.S. jobless claims fell last week.

“A 75-bp hike is fully baked in, so what everyone wants to know is whether the Fed will retain an aggressive rate of tightening as we head into 2023. Gold is likely to suffer with a hawkish hike,” said Matt Simpson, a senior market analyst at City Index.

Gold is highly sensitive to rising U.S. interest rates, as they increase the opportunity cost of holding non-yielding bullion while boosting the dollar.

Meanwhile, India on Thursday slashed the base import prices of gold.

Spot silver dipped 0.2% to $19.11 per ounce. Platinum fell 0.4% to $900.60, while palladium was little changed at $2,135.78.

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