Gold holds near 3-month low on hawkish Powell hints, BoE hikes by 50 bps

Key points

Spot Gold traded near recent three-month trough on Thursday after Federal Reserve Chair Jerome Powell indicated more tightening was likely to rein in inflation.

In remarks before Congress on Wednesday, Powell said more rate hikes were “a pretty good guess” of the Fed’s future trajectory.

Markets are now pricing in a 72% chance of a 25 basis point interest rate increase at the Fed’s meeting in July, while rate cuts are expected as early as 2024, according to CME’s FedWatch tool.

Rising interest rates tend to weigh on the yellow metal’s appeal, as they are associated with a higher opportunity cost of holding Gold, which does not pay any interest.

In terms of macro data, the US initial jobless claims report at 12:30 GMT today is on traders’ radar. Market consensus points to claim count of 260,000 for the week ending June 16th.

“Strong labour and sticky services inflation are leaving room for further monetary tightening, which will be a short-term headwind (for Gold),” ANZ analysts wrote in a note to clients, cited by Reuters.

Meanwhile, the Bank of England raised its benchmark interest rate by 50 basis points to 5% at its June meeting, which marked the 13th successive rate increase.

The BoE decision came as a surprise to market players, as expectations largely pointed to a 25 basis point rate hike.

The rate decision brought borrowing costs to their highest level since the 2008 financial crisis.

As of 12:29 GMT on Thursday Spot Gold was retreating 0.32% to trade at $1,926.61 per troy ounce. Yesterday the precious metal went down as low as $1,919.24 per troy ounce, which has been its weakest price level since March 17th ($1,918.30 per troy ounce).

Gold Futures for delivery in August were edging down 0.29% on the day to trade at $1,939.25 per troy ounce, while Silver Futures for delivery in July were down 0.94% to trade at $22.595 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was inching up 0.03% to 102.108 on Thursday. Earlier in the session, the DXY went down as low as 101.921, which has been its weakest level since May 11th (101.304).