Gold fell in value when the U.S. dollar strengthened

Gold fell slightly yesterday, to settle at 65583, under the weight of a stronger U.S. currency and expectations for comments from the U.S. Federal Reserve Chair after the central bank’s policy meeting. With recent data indicating strong gains in U.S. consumer and producer prices, damping anticipation for early Fed rate cuts, the market anticipated clarity on potential interest rate decrease actions.

Having gold or other non-yielding assets tends to become less appealing when interest rates rise. Based on the CME Fed Watch Tool, investors are currently pricing in a 55% chance of a rate drop by the Fed in June. Asia’s demand for real gold was declining at the same time as the Bank of Japan decided to end its eight years of negative interest rates and other unconventional policies.

Due to the high cost of gold, dealers, especially in China and India, were forced to give steep discounts as consumers refrained from making new purchases. While Indian dealers were offering discounts of approximately $36 per ounce, the most since March 2023, gold premiums in China dropped to $15–$25 per ounce, the lowest levels since July. Similar patterns of gold sales at par with minor premiums were noted in Hong Kong and Singapore. Dealers in Japan sold gold at par or slightly above market value.

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