FX.co ★ Gold: Spot prices fall as the Fed raises interest rates

Gold fell significantly in value on Monday morning, which is facilitated by the comments of Federal Reserve Chairman Jerome Powell that the central bank intends to continue the process of tightening monetary policy.

December futures quotes for gold on the New York Comex exchange hit $1.734.4 per troy ounce, that is, 0.89% lower than the previous trading day's value. By 14:50 London time, this figure was at the level of $1,740.3.

Powell announced at the central bank symposium in Jackson Hole that the Fed is not going to make dovish changes in its policy of interest rate dynamics, but will continue to raise the cost of borrowing.

He also noted that economic growth in the United States under the threat of a rate increase, households and various businesses will definitely face some difficulties, but this is necessary to contain consumer price growth.

The Fed is expected to raise borrowing costs by 75 basis points in September, pushing interest rates above 3% by the end of the year.

Gold, after these comments and the announcement of forecasts, could not withstand the pressure and collapsed in value to the lowest level in the last month. Moreover, the precious metal almost reached the level of the fifth monthly drop, the longest in four years. It is obvious that higher interest rates in the world's largest economy do not adorn this commodity. It automatically becomes less attractive to investors, since it is no longer considered as a safe haven asset, especially from inflation.

Not the last role in the decline in the price of gold is played by the noticeably strengthened US dollar, which, after Powell's speech, showed a 20-year high against a basket of six major currencies. At 07:44 London time, the dollar index was trading at 109.26, retreating from another 20-year record of 109.48, which was reached by the US currency during the trading session.

In the US, in July, annual inflation slowed down to 8.5%, a month earlier this figure was at the level of 9.1%. Despite this, US inflation is still too high, especially compared to the 2% target. At the same time, the country's GDP shows a decline for two consecutive quarters, namely by 0.6% on an annualized basis in the second quarter and by 1.6 in the first.

Now the main data remains on employment in the US, which will be published on Friday. If the report on the labor market turns out to be strong, then the Fed will have additional opportunities to maintain the current pace of monetary tightening.

Meanwhile, Senator Elizabeth Warren said last Sunday that she was very concerned about the Fed's plans to tighten monetary policy, as this risks leading the country's economy into recession. Warren also added that she does not believe that the increase in rates can contain the current price pressure.