WASHINGTON (dpa-AFX) - Gold prices have slumped on Friday as traders analyzed a speech by U.S. Federal Reserve Kevin Warsh at the Jackson Hole economic symposium hinting at rate hikes amid the ongoing U.S.-Iran crisis.
Front Month Comex Gold for September month delivery has tumbled by $129.50 (or 2.81%) to $4,480.70 per troy ounce.
Front Month Comex Silver for September month delivery has also plunged by $2.651 (or 3.82%) to $66.780 per troy ounce.
U.S. Federal Reserve Chair Kevin Warsh delivered his first keynote address at the Jackson Hole symposium in Wyoming.
Being the first major speech by Warsh after assuming office in May, his speech was highly anticipated while the U.S. is combating several economic headwinds.
On August 19, U.S. Treasury Secretary Scott Bessent announced that the U.S. government would at least double its buybacks of longer-dated Treasury bonds, increasing each operation from $2 billion to at least $4 billion from September 9 through November 4.
Bessent's surprise move was in response to the challenges to fiscal management as well as valuations of riskier assets after 30-year bond yields climbed to their highest level since 2007. Yields declined soon after his decision but later recovered.
Market participants viewed Bessent's move as a sign to curtail long-term borrowing costs.
For the Treasury to achieve its goal of keeping the yield returns lower, the size of the buybacks should increase substantially, which would require the U.S. Fed's complicity.
U.S. inflation continues to hover above the Fed's target of 2%. Data from August 26 showed that the Personal Consumption Expenditures Price Index, which is the Fed's preferred measure to gauge inflation, increased 3.70% for the year to July.
The U.S. national debt surpassed $40 trillion last week. The budget deficit is approaching 6% and still widening.
In the current year, the U.S. government's debt interest burden has already crossed $1 trillion.
In today's speech, Warsh did not mention the Treasury's recent announcement but acknowledged that inflation has not meaningfully improved. Warsh remarked that the Fed may 'have work to do,' hinting at rate hikes.
Following his speech, investors raised the probability for rate hikes. Currently, traders are betting on a 57.50% chance of a 25-basis-point interest rate-hike by the U.S. Federal Reserve at its upcoming meeting on September 15-16, while the odds on rates being held at the current level stand at 42.50%, according to the CME Group's FedWatch Tool.
In the last meeting of the Federal Open Market Committee, 3 out of 12 members voted for a rate hike. Over the past few days, a number of Fed officials explicitly indicated their preference for opening the path to rate hikes.
The war between the U.S. and Iran has not ended, although the U.S. administration paused military maneuvers and announced a massive economic operation aimed to cut all the funding channels to Iran.
As a result of the standoff, the Strait of Hormuz remains closed, continuing to increase inflation concerns.
U.S. President Donald Trump is set to face the mid-term elections amid increasing frustration among Americans owing to high gasoline prices.
Being a proponent of a low-interest regime, Trump has been seeking to lower the rates ever since the beginning of his second term as president.
Amid renewed rate hike expectations, the dollar strengthened and worked against the gold prices. The U.S. dollar index was last seen trading at 99.65, up by 0.54 (or 0.54%) today.
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