Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinGold dropped another 0.4% to close near $1,671 as Treasury yields and the dollar continued to march higher on expectations that the Fed will deliver a jumbo rate increase at this week's meeting. It was the metal's lowest finish since April 2020.

At tomorrow's conclusion of its two-day meeting on monetary policy, the Fed is expected to announce a rate hike of 75 basis points to fight stubborn inflation—unless it goes even bigger.

Fed funds futures traders place the odds of a third straight increase of 75 basis points at 81%, lifting the benchmark rate to between 3% and 3.25%. This is the threshold, according to the Fed, where economic growth is restricted and inflation along with it.

But the Fed could surprise to the upside. A hike of 100 basis points, the first since the early 1980s, is given a 19% chance by Fed fund futures traders. The odds of a 50-point hike, considered the likeliest move just weeks ago, is a flat zero.

Gold has fallen sharply in recent weeks as the Fed has become aggressively vocal about combating inflation with sharply higher interest rates irrespective of the effect on financial markets. Gold has become oversold, in part, on worries about the possibility of extreme rate outcomes.

If the central bank "merely" hikes by 75 basis point tomorrow, a short-covering rally could lift the metal well above recent lows.

Benchmark 10-year Treasury yields climbed further on the hawkish rate view, weighing on gold by increasing the opportunity cost for holding it instead of bonds as a safe-haven asset.

Yields on rate-sensitive 2-year Treasury notes pushed briefly over 4%, the highest level in 15 years. Short-term yields typically exceed longer-term, inverting the yield curve, when the investors lose confidence in the economy and expect recession.

The dollar tracked higher with yields, adding 0.4% against major rivals to hold near a 20-year high. A stronger dollar pressures gold and other commodities by making them more expensive in other currencies.

Wall Street retreated on the prospect that higher interest rates and slowing growth will erode further corporate earnings. All three major indexes dropped more than 1%.

The other precious metals were mostly lower, with silver and palladium sliding 0.9% and 2.3%, respectively, while platinum picked up 0.5%.

At the Comex close: December gold slid $7.10 to $1,671.10; December silver dropped 18 cents to $19.18; October platinum rose $4.30 to $922.80; and December palladium shed $50.20 to $2,170.50 an ounce.