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The Impact of Higher US Rates on Declining Gold Prices

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[Interactive Chart: Gold Prices and Trends]

The decline in gold prices is directly linked to the recent rise in US interest rates. As the US dollar index increased by 0.5%, other currency holders found bullion less attractive.

Financial analysts, like Jim Wyckoff, senior analyst at Kitco Metals, predict that gold prices could drop below $1,800 in the near-term due to the expectation of higher interest rates for a longer period of time. This expectation has been the bearish element affecting the precious metals market.

The strength and duration of trends in the currency markets often impact the gold market significantly. The appreciation of the US dollar is unlikely to end soon, which adds more pressure to the gold market.

Traders are anticipating a 55% chance that the Federal Reserve will maintain interest rates in the current range of 5.25%-5.50% throughout the year, according to CME’s FedWatch tool.

Michelle Bowman, Federal Governor, stated her willingness to support another rate increase if data suggests that inflation progress is stalling or proceeding too slowly.

Gold prices have experienced a significant drop of over 11% or $230 since surpassing the $2,000-per-ounce level in early May. The surge in benchmark US Treasury yields is the main reason behind this decline, as it makes gold less attractive as a non-yielding investment.

Tai Wong, an independent metals trader based in New York, noted the absence of central bank buying on dips in gold, creating a noticeable shift in the market.

The market’s attention now turns to Fed Chair Jerome Powell’s upcoming speech, as well as job openings data, private hiring numbers, and US non-farm payrolls throughout the week.


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