Gold struggles for traction on firmer US dollar, hawkish Fed remarks

Gold prices closed in the red today, Sept. 5, as markets evaluated hawkish statements from Federal Reserve policymakers amid a firmer US dollar.

Bullion for December delivery contracted by 0.75%, or $14.50, to finish at $1,952.60 per ounce.

In an interview with CNBC earlier today, Fed Governor Christopher Waller said the recent round of strong economic data will allow the US central bank to afford to “proceed carefully” with potential additional interest rate hikes to contain inflation.

“It is not obvious that we are in real danger of doing a lot of damage to the job market, even if we raise rates one more time,” Waller was quoted as saying, noting that the current uptick in Treasury bond yields is in tune with the Fed decisions.

Meanwhile, Cleveland Fed President Loretta Mester told German newspaper Börsen-Zeitung, “I can well imagine, from what I see so far, that we might have to go a bit higher, that we might have to raise the policy rate a bit more.”

She continued, “But there is still a lot of time before our next decision in September and we will get a lot of data and information by then.”

On the other hand, Edward Moya, senior market analyst at OANDA, explained that global bond yields advanced sharply across the board. “It appears that there are concerns that global growth concerns could get even uglier, and that is sending everyone back to the [US] dollar,” he added.

The US dollar index, which measures the performance of the US currency against a basket of six major currencies, gained 0.50% to 104.75 points, continuing to trade above its highest levels since last March.

US equity investors are in for disappointment as economic growth is set to be weaker than expected this year, Morgan Stanley Chief US Equity Strategist Michael Wilson wrote in a note today.

“At current prices, markets are now expecting a meaningful re-acceleration in growth that we think is unlikely this year, especially for the consumer,” Wilson pointed out.

In a letter submitted to G20 Leaders ahead of their Sept. 9-10 meeting in New Delhi, Financial Stability Board Chairman Klaas Knot warned of the possible further challenging backdrop in the coming months as high interest rates dampen economic recovery and threaten major sectors.