Gold Prices Decline as Investors Fear Fed May Not Cut Rates by 0.5%
Global gold prices experienced a significant drop on August 14th due to concerns that the U.S. Federal Reserve (Fed) might not reduce interest rates by 0.5 percentage points in its September meeting. Initial expectations for a substantial rate cut have waned following the July inflation report from the U.S. Commerce Department.
During the New York trading session, spot gold prices fell by $17/oz, or 0.69%, to $2,448.2/oz. This morning, spot gold prices in Asia saw a slight increase of $2/oz, reaching $2,450.2/oz, equivalent to approximately 74.4 million VND per tael according to Vietcombank’s exchange rate, though still down 700,000 VND per tael compared to yesterday morning.
The July Consumer Price Index (CPI) report revealed a 2.9% year-over-year increase, down from 3% in June and marking the lowest rate since March 2021. This CPI growth has sparked concerns that the Fed may opt for a 0.25 percentage point rate cut instead of the 0.5 percentage points many investors had hoped for.
According to CME’s FedWatch Tool, the probability of a 0.5 percentage point rate cut by the Fed in the upcoming meeting dropped to 41% after the CPI report was released, down from around 50% prior. This diminished expectation has put pressure on gold prices, along with profit-taking by investors following strong gains earlier in the week.
Tai Wong, a precious metals trader in New York, noted that while a rate cut by the Fed in September is almost certain, it is likely to be only 0.25 percentage points, which has disappointed the market. Phillip Streible from Blue Line Futures also agreed that the market is now shifting its expectations toward this smaller rate cut, reducing gold’s upward momentum.
However, analysts from Societe Generale and Kitco Metals believe that geopolitical risks and technical factors continue to support gold prices in the short term. Speculators aim to push gold prices above $2,537.7/oz, with key support and resistance levels at $2,475/oz and $2,500/oz, respectively.
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