Gold fell to near a two-year low after Federal Reserve Chair Jerome Powell pledged to crush inflation and the dollar surged to a record, with the precious metal on the cusp of sinking into a bear market.
The Fed raised interest rates by 75 basis points, and lifted forecasts on where borrowing costs would be at year-end. Bullion closed up 0.5% on Wednesday on a combination of relief that the US central bank didn’t raise rates even more, and haven flows after Vladimir Putin escalated the war in Ukraine.
“Gold’s biggest struggle in the last few months have been the persistent strength in the US dollar,” said Madhavi Mehta, a senior analyst at Kotak Securities Ltd. “Unless we see a significant correction in the US dollar, gold may struggle to recover,” she said.
Gold has had a tumultuous year, rallying close to a record in March after Moscow invaded its smaller neighbor, then slumping as the Fed toughened its approach to quelling the fastest inflation in decades. That pivot has lifted a Bloomberg gauge of the US currency to an all-time high and driven Treasury yields upward, dulling the allure of the non-interest bearing metal.
Bullion’s extended retreat — with prices on course for a sixth consecutive monthly drop in September — has driven prices close to bear-market territory, typically defined as a slump of 20% from a closing high. For bullion, that would be a finish below $1,650.83 an ounce, or 20% below its record close in 2020.
“Gold will remain vulnerable to selling pressure if inflation does not continue to ease, but it could start to stabilize,” said Ed Moya, senior market analyst at Oanda. The hawkish Fed projections point to a “rather grim outlook for the economy,” which could trigger a return of haven demand, he said.
Spot gold was 0.8% lower at $1,659.82 an ounce at 12:15 p.m. in Singapore as the Bloomberg Dollar Spot Index advanced to an all-time high. Silver, palladium and platinum all declined.