Gold price pressured at $1707, but eying $1,730

Gold prices are down on the day after heavily falling from a high of $1,728.23 to a low of $1,704.00. The precious metal is trading around $1,707.33 at the time of writing and lower by 0.5%.

The US dollar index and shorter-dated US Treasury yields rose on Thursday following Fed Chair Jerome Powell’s comments that the US central bank was “strongly committed” to controlling inflation.

The DXY index, which measures the greenback vs. a basket of currencies has travelled between a low of 109.334 and a high of 110.243 so far while the 10-year Treasury yield has recovered to a 3.304% high on the day from a low of 3.201%. The two-year yield reached a high of 3.506% from a low of 3.404% and is currently up 1.45% on the day.

US stocks have struggled for direction as investors digested hawkish remarks by Powell and other policymakers that are underpinning the sentiment for a large interest rate hike later this month.

Later on the day, Chicago Fed President Charles Evans joined his fellow policymakers in saying that reining in inflation is job one, although he said that he would prefer to raise rates and hold for some time, rather than raise too far and then have to cut. ”I’m open-minded on 50 bps or 75 bps rate hike for Sept.

Money market traders see nearly 90% odds that the Fed will hikes rates by 75 basis points at this month’s meeting.

Over the last multiple decades, gold prices have tended to outperform in the earlier stages of a hiking cycle, but have displayed a systematic underperformance when markets expect the real level of the Fed funds rate to rise above the neutral rate.

While gold prices may now have accurately captured the expected level of interest rates, they are not reflecting the implications of a sustained period of restrictive policy.

While gold prices are flirting with a break of a multi-decade uptrend near $1675/oz, the stars are aligning for additional downside in precious metals to ensue. Rates markets appear to be nearing a fair pricing for Fed funds, but gold’s price action is still not consistent with its historical performance when hiking cycles enter into a restrictive rates regime.

US data showed the number of Americans filing new claims for unemployment benefits fell last week to a three-month low. This proves a robust labour market even in the face of higher levels of inter0est rates.

Investors will be waiting for a critical last-minute US August inflation report next week ahead of the Fed meeting that will offer some final key information that could give fresh clues on whether the Fed will need to raise by 75 or 50 basis points at the next policy meeting due Sept. 20-21.