WASHINGTON (dpa-AFX) - Gold prices slumped on Tuesday as expectations of another U.S. Federal Reserve rate cut are fading away amid divergent comments from Fed officials, while the U.S. dollar ascends to a three-month high.
Front Month Comex Gold for November delivery tumbled by $52.60 (or 1.31%) to $3,947.70 per troy ounce.
Front Month Comex Silver for November delivery also slumped by 75.80 cents (or 1.58%) to $47.130 per troy ounce.
On October 29, the Fed instituted its second rate cut of the year bringing the range down to 3.75% to 4.00%.
Investors were anticipating further lowering in December even though U.S. Federal Reserve Chair Jerome Powell warned that another rate cut in December is not a foregone conclusion. These expectations kept gold prices on the upside.
However, Chicago Federal Reserve president Austan Goolsbee stated yesterday that he was worried about inflation and hence undecided about the need for another rate cut.
Separately, Federal Reserve governor Lisa Cook and San Francisco Fed President Mary Daly also echoed Goolsbee's views.
In addition, all three concurred on the difficulty in setting a monetary policy in the absence of official data.
On Friday, Kansas City Federal Reserve President Jeff Schmid had stated that as he felt inflation was too high, he did not favor a rate cut.
CME Group's FedWatch Tool is currently indicating a 70.1% chance of a 25-basis-point interest rate cut at the Federal Reserve's meeting coming up on December 9-10.
Prior to Powell's comments, the markets were betting on higher than 90% chances of a rate cut.
The U.S. dollar index was last seen trading at 100.027, up by 0.320 points (or 0.32%).
The U.S. government shutdown entered day number 35 today, matching the tenure of a previous closure that began in December 2018.
Economists are concerned about the ongoing stalemate between Republicans and Democrats over passing a short-term funding bill. The consequences are widespread, with SNAP funding running dry and flight services severely disrupted across the country.
Analysts do not expect a positive outcome from the Senate voting for the 14th time today on reopening the government.
Despite the economic uncertainty supporting gold prices, the gains were also neutralized by increasing optimism about recent U.S.-China trade talks. Both nations have climbed down to pause on tariffs and lift other restrictions to ensure a seamless trade relation between the world's largest economies.
Last weekend, China's Finance Ministry announced halting the exemption given to gold retailers to offset the Value-Added Tax (around 13%) on the sale of gold purchased from the Shanghai Gold Exchange, starting November 1.
This new rule applies to all forms of gold purchases - whether sold directly or processed into jewelry, coins, industrial materials, high-purity bars, etc.
As China, (alongside India) is the largest consumer of gold, this new move, according to analysts, is bound to impact global gold trade dynamics.
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