Gold Prices Decline Amid Federal Reserve’s Interest Rate Decision
Key Interest Rates Held Steady
Gold prices took a hit on Thursday following the Federal Reserve’s decision to keep key interest rates steady and update its projections. The central bank signaled only one rate cut this year, causing gold prices to decline.
In the UAE, the decline in gold prices was evident, with 24-carat gold falling to AED280 per gram and 22-carat gold decreasing to AED259.25. Meanwhile, 21-carat and 18-carat gold remained stable at AED251 and AED215, respectively.
Factors Contributing to Gold Price Decline
Globally, spot gold saw a 0.44 percent decline to $2,310.63 per ounce, with U.S. gold futures also declining by 1.26 percent to $2,325.15. The rise of the dollar index by 0.17 percent made greenback-priced gold less attractive to other currency holders, further impacting the gold market. Additionally, the benchmark U.S. 10-year bond yield rose by 0.031 percent.
Inflation Outlook and Impact on Gold Demand
The Federal Reserve’s decision to keep interest rates steady while signaling only one rate cut in 2024 reflects a conservative inflation outlook. Fed chair Jerome Powell mentioned that the inflation outlook is relatively conservative, noting that better-than-expected inflation consumer price index data was well received by officials. Inflation data showed a 3.3 percent price increase in May, which is the lowest in three months.
Lower interest rates reduce the opportunity cost of holding non-yielding gold, leading to increased demand and higher prices for the precious metal.
Insight into China’s Gold Market
In May, China’s consumer inflation remained steady, while producer price declines eased. China, as the largest official sector buyer of gold, did not make gold purchases for the first time in 18 months. However, it is expected to resume buying once gold prices decrease further. Notably, China saw a surge in local safe-haven demand for gold coins and bars, which increased by 27 percent in the first quarter of this year.
Impact on Other Precious Metals
In line with the decline in gold prices, other precious metals also experienced downward movement. Spot silver saw a 1.89 percent loss, dropping to $29.14 per ounce. Platinum and palladium also declined, with platinum dropping by 1.89 percent to $945.26 and palladium declining by 1.22 percent to $895.48.
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