Gold’s glitter dulled Wednesday as prices tumbled 1% to a two-week low, dragged down by a stronger dollar and climbing bond yields. Traders are now eyeing upcoming U.S. inflation data with bated breath. Spot gold dropped 0.8% to $2,301.16 per ounce by 2:03 p.m. ET (1803 GMT), its lowest since June 10, while U.S. gold futures settled 0.8% lower at $2,313.2.
Bart Melek, head of commodity strategies at TD Securities, noted, “The market is reacting to a firmer U.S. dollar and the likelihood that the Federal Reserve won’t be adjusting interest rates anytime soon.”
The dollar’s rise, up 0.4% to a near two-month high, makes gold more expensive for buyers using other currencies. Simultaneously, U.S. 10-year yields hit a near two-week high, adding to gold’s woes.
This week’s focus is on the U.S. Personal Consumption Expenditures Price Index, the Fed’s preferred measure of inflation, which could hint at future interest rate moves. Also, first-quarter GDP estimates and a debate between President Biden and Donald Trump are on the agenda.
Tuesday’s data revealed a dip in U.S. consumer confidence for June, with concerns about the economic outlook, although optimism about the labour market and expectations for moderating inflation remained.
Fed Governor Michelle Bowman suggested that holding the policy rate steady for a while might suffice to control inflation but didn’t rule out future rate hikes. Higher interest rates make non-yielding bullion less attractive as the opportunity cost rises.
In other metals, spot silver slipped 0.1% to $28.88 per ounce, palladium dropped 2% to $929.25, while platinum gained 3.1% to $1,011.88.
African Gold Market Feels the Pinch
Market sentiment and narratives play a significant role in how gold reacts to fundamental changes. Gold has always been a cherished commodity, and its price fluctuations are closely watched. Mostly quoted in US Dollars (XAU/USD), gold prices often rise when stocks and bonds fall, serving as a safe haven. However, the recent dip to $2,301.16 per ounce affects not just global markets but African ones too.
Three key factors influencing gold are the US dollar exchange rate, real interest rates, and global economic confidence. A stronger dollar makes gold pricier for countries using other currencies, reducing demand in African markets. For instance, Nigeria’s depreciating naira means higher gold prices locally, deterring potential buyers.
Rising U.S. bond yields also make gold less attractive compared to interest-bearing assets. Investors lose out on potential bond returns when holding gold. African central banks may need to adjust their policies in response to U.S. monetary moves, which could further reduce gold demand.
U.S. inflation data, particularly the Personal Consumption Expenditures Price Index, is under scrutiny. A high reading could push the Fed towards a more aggressive stance, strengthening the dollar further and putting more pressure on gold prices, impacting African markets.
Local factors also play a role. Geopolitical tensions, currency fluctuations, and domestic economic conditions influence gold prices on the continent.
Global dynamics, like a strengthening dollar and rising bond yields, are expected to reduce gold demand in African markets. However, the extent of the impact will vary depending on individual African economies and their central bank policies. Local issues also significantly influence gold prices.
