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Gold plummets to two-year low

The price drop is attributed to a rise in US inflation and fears of a more aggressive monetary policy by the Fed

© Getty Images / Chris Collins

The price of gold plunged to its lowest since April 2020 on Friday as investors remained wary of more aggressive interest rate hikes by the Federal Reserve, despite a fresh round of mixed data on the US economy.

Spot gold fell to $1,670 per ounce as of 11:00 GMT. Highly sensitive to US rates hikes, non-yielding gold has lost nearly $400 since its March peak.

“The gold market has clearly priced in a more aggressive US Federal Reserve ahead of next week’s meeting, reflecting the Central Bank’s determination to fight inflation,” Carsten Menke, head of Next Generation Research at Julius Baer, told Reuters on Thursday.

While the consensus is for a 75-basis-point (bps) rise, some are even expecting a full percentage point increase, which is partly reflected in the gold market, Menke said, adding that a 75 bps hike would come as a positive surprise for the gold market.

“Damage is being driven by the market pricing in a 1% rate hike next week and a terminal rate around 4.5%. Stronger than expected retail sales are not helping,” head of commodity strategy at Saxo Bank Ole Hansen told Bloomberg.

The precious metal has dipped 9% this year as the Fed aggressively raised rates, triggering outflows from assets that bear no interest.

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