Gold prices dropped to their lowest level in 6-½ months on Wednesday as support around the $1,900-per-ounce mark, which had been in place since early August, weakened. This decline was driven by continued flows of investment money from gold into the U.S. dollar and Treasury yields.
The most active gold futures contract on the New York Comex, December, settled at $1,890.90 per ounce, marking a $28.90 or 1.5% drop for the day. This is the lowest level for December gold since March 13 when it reached $1,875.70.
The spot price of gold, closely monitored by some traders, reached $1,875.14 by 14:32 ET (18:32 GMT), down $25.52 or 1.3%. This is the lowest spot gold has seen since March 10 when it reached $1,870.28.
The U.S. dollar rallied significantly, causing the euro to plummet, after the eurozone reported a significant drop in money supply, indicating that banks were holding back on lending, and depositors were saving more.
In the U.S., durable goods orders saw a stronger-than-expected increase of 0.2% in August, primarily driven by higher defense spending to replenish military hardware for Ukraine. However, core orders for durable goods, which exclude defense and transportation, rose by 0.9%, suggesting broader business investment.
Despite the rally in the U.S. dollar and expectations of continued U.S. economic strength, concerns about economic growth persist, with consumer spending slowing due to rising inflation.
The Dollar Index reached its highest level since November 2022, discouraging those holding other currencies from investing in dollar-denominated commodities like gold.
Treasury yields, particularly on the 10-year note, also reached 16-year highs, heightening the appeal of U.S. assets.
The continued rally of the U.S. dollar and yields reflects the Federal Reserve’s hawkish stance, which includes the possibility of another rate increase by the end of the year. Fed Chair Jerome Powell has expressed concerns about energy-driven inflation, which has pushed oil prices to 10-month highs, nearing $94 per barrel.
The Fed’s renewed hawkish stance has raised concerns about its potential impact on global economic growth. However, economists acknowledge the need to control oil prices in order to achieve the Fed’s annual inflation target of 2%.
