Gold Futures Settle Lower As Powell’s Interest Rate Remarks Weigh

Gold prices fell on Thursday, weighed down by hawkish comments from Fed Chair Jerome Powell, and the European Central Bank’s interest rate decision.

The ECB today raised its interest rates by a massive 75 basis points, the biggest hike ever in the single currency bloc’s history, and signaled more tightening in the coming months as policymakers try to rein in runaway inflation in a bid to support a slowing economy.

“This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will support a timely return of inflation to our two percent medium-term target,” ECB President Christine Lagarde said Thursday.

The ECB assessed that inflation remains far too high and is likely to stay above its 2 percent target for an extended period.

The central bank now expects inflation to average 8.1% this year, 5.5% next year and 2.3% in 2024. The ECB Staff now expects the economy to grow by 3.1% this year, 0.9% next year and 1.9% in 2024.

Meanwhile, Fed Chair Jerome Powell signaled that the central bank will remain aggressive with regard to its monetary policy.

Speaking at the Cato Institute’s monetary policy conference, Powell reiterated the Fed’s commitment to fighting inflation, once again warning about the dangers of allowing elevated prices to become entrenched.

The dollar’s fall from higher levels helped limit gold’s downside. The dollar index, which climbed to 110.24, pared its gains subsequently and dropped into negative territory.

Gold futures for December ended lower by $7.60 or about 0.4% at $1,720.20 an ounce after falling to a low of $1,713.70.

Silver futures for December ended up $0.182 at $18.442 an ounce, while Copper futures for December settled at $3.5270 per pound, gaining $0.0965.

Powell’s comments are seen as reinforcing expectations that the Fed will raise interest rates by another 75 basis points at its next meeting later this month.

CME Group’s FedWatch Tool currently indicates an 86% chance of a 75 basis point rate hike at the September 20-21 meeting and just a 14% chance of a 50 basis point rate hike.

Data released by the Labor Department showed initial jobless claims in the U.S. edged down to 222,000 in the week ended September 3rd, a decrease of 6,000 from the previous week’s revised level of 228,000.

Economists had expected jobless claims to inch up to 240,000 from the 232,000 originally reported for the previous week.

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