Gold prices are declining.. Statements by the Chairman of the Federal Reserve put pressure on the yellow metal

Gold prices fell to their lowest level in about two weeks, after statements by US Federal Reserve Chairman Kevin Worsh raised a number of expectations indicating the possibility of interest rates rising in the coming days; This raises a number of questions about financial sustainability and the ability of economies to maintain an acceptable level of monetary stability.

This decline came despite the continuing tensions in the Middle East, with the region witnessing a rise in oil prices. These are two factors that usually push many investors to move towards gold, on the basis that it is relatively…To them a safe haven.

The yellow metal fell in spot transactions by 0.3% to $4,439.31 per ounce, after earlier recording its lowest level since August 19, while prices lost more than 3% since Friday.

This move reveals a relatively complex equation in the markets, which can be simplified into a clear series: High oil prices increase inflation fears, and high inflation may prompt the Fed to raise interest rates, and at the same time high interest rates make gold less attractive to some investors.

Fall near the lowest level

The pressure on gold prices began after Warsh’s statements during the Jackson Hole Economic Symposium, when he indicated that the Fed may have to take additional steps, if inflation does not decline.Clearly towards its target of 2%.

Based on these statements, investors saw a clear indication that raising interest rates is still a possibility, and global markets also see – according to data from the CME FedWatch tool (a digital tool on the Chicago Mercantile Exchange that predicts interest rates) – a probability of about 60% that the Fed will raise interest rates this September.

This possibility directly affects the yellow metal; Because it does not give its holder periodic interest, and when interest rates rise, instruments such as bonds become more attractive to investors looking for a return, which may push part of the funds away from gold.

The pressure was also reflected on the rest of the precious metals; Silver fell by 0.5% to $66.68 per ounce, and platinum fell by 0.7% to $1,807.37, while palladium fell by 1.1% to$1,405.75.

Interest pressures

Also, gold is usually a hedge against inflation. Because investors resort to it for financial stability, and this is when the strength of currencies declines. That is, their purchasing power, or when prices rise quickly. This financial stability is of great importance to individuals; It helps them achieve the eighth goal of the Sustainable Development Goals (SDGs): decent work and economic growth.

However, the relationship becomes somewhat different when inflation pushes the central bank to tighten its monetary policy. If inflation rises in a way that worries the Fed, it may move to raise interest rates. In order to curb the rise in prices, and then the return on some financial investments increases, while gold remains an asset that does not generate interest.This is why gold can face pressure even in times of high inflation, especially when markets are convinced that the central bank will respond by raising interest rates.

Regarding this, Tim Waterer, chief market analyst at KCM Trade (a global platform for financial brokerage and currency trading services), says: « Gold is still affected by the strict tone used by “ and workshops “ in Jackson Hole, as higher oil prices added further inflationary pressures ».

Oil increases complexity

This decline recorded in gold prices coincided with a new escalation in tensions between the United States and Iran, after an exchange of attacks that were…First time since July. US President Donald Trump also posted an artificial intelligence-generated video that he said showed the destruction of Kharg Island, a source of Iranian oil. It was not clear whether the video suggested the possibility of an attack or referred to a military operation already underway.

These developments pushed oil prices to rise by more than 2%, which added a new factor to investors’ calculations regarding the future of inflation and interest rates. Geopolitical tensions usually increase demand for gold as a safe haven, but higher oil prices may limit this effect.

The reason for this is that oil is included in the costs of transportation, production, and energy, which means that a rise in its prices may lead to an increase in the cost of many goods and services. As oil prices continue to rise, inflationary pressures may increase within the US economy.This may lead investors to expect high interest rates to continue or be raised in the next stage.

Data determines the trend

From another angle, investors’ eyes are now turning to a series of data in the American labor market expected to be released this week. Because it may provide new signals about the strength of the economy and the direction of interest. Expected data includes:

• Numbers of vacant positions
• ADP Employment Report
• Weekly Unemployment Claims
• NFP Non-Farm Payrolls Report

If this data is strong in its direction and indicators, it may increaseExpectations that the Fed will continue its high interest policy or move towards a new increase; Consequently, pressure on gold and its prices increases. However, if the data shows clear weakness in the labor market, expectations for raising interest may decline, which could give gold prices an opportunity to recover.

In conclusion, we conclude from the above that the significance of the decline in gold prices lies in the nature of the factors. Markets are now looking at the crisis from more than one angle, and at the same time asking: What will happen to inflation? Where will interest rates go? Will the economy still be able to withstand monetary policy tightening or not?

From the point of view of The Earth Guards Foundation, reading gold’s movement in this way is more important than treating every rise or decline as an indicator.individually on the direction and nature of economic growth; Global markets have become highly interconnected, and any energy shock can quickly be transmitted to production, transportation, and consumption costs, and then turn into a monetary issue that affects the decisions of central banks, before being reflected again on investments and markets.