Gold Tumbles From $1,800 as Hawkish Fed Officials Boost Dollar

© Reuters.

By Ambar Warrick

Investing.com-- Gold prices sank on Wednesday, with futures shedding nearly 1% after hawkish comments from several Federal Reserve officials drove up the dollar with the prospect of sharper interest rate hikes.

As of 2105 ET (0105 GMT), Gold Futures fell 0.9% to $1,774.20 an ounce. Spot gold was down 0.2% at $1,758.12. Futures for the yellow metal had briefly risen above $1,800 on Tuesday as concerns over rising U.S.-China tensions drove safe haven demand.

But the gains were cut short after two Fed officials outlined the possibility of more steep interest rate hikes to combat rampant inflation.

Speaking to CNBC, San Francisco Fed President Mary Daly said the Fed has a “long way to go” before inflation can be tamed, which likely points to more interest rate hikes.

Separately, Chicago Fed President Charles Evans flagged another major rate hike, but expressed hope that such a move could be avoided.

Their comments triggered a 1% spike in the U.S. dollar on Tuesday, while US Dollar Index Futures surged 0.9% to $106.18. U.S. 10-Year Treasury yields also surged after their comments, ending Tuesday at 2.747%.

The dollar has largely overtaken gold as a safe haven buy this year, with its appeal boosted by the prospect of more interest rate hikes.

After raising rates four times this year, the Fed will now meet in late-September to decide on its next course of action. Inflation has reached a staggering 9.1% annual rate in the U.S., putting pressure on the bank to tighten policy further.

CME Group (NASDAQ:CME) data now shows that a majority of investors are positioning for a 0.5% hike in September, which would put rates between 2.75% to 3.0%.

Dollar strength weighed on most other major metals on Wednesday, with Silver and Platinum futures reeling from 2% drops each.

Among industrial metals, London-traded copper futures fell 0.6% to $7,775.50 after shedding 1.1% on Tuesday. Nickel Futures plummeted 8%, sharply consolidating recent gains, while Aluminium shed 1.7%.

Industrial metals, particularly copper, were hit hard this week by a swathe of weak manufacturing data from across the globe. With economic activity steadily declining this year, the outlook for metal prices remains dim.