International gold prices experienced a minor decline on Monday as investors closely monitored the decisions of U.S. Federal Reserve officials, who have been deliberating potential future interest rate hikes.
This apprehension was driven by the anticipation of the forthcoming release of the personal consumption expenditure (PCE) data later in the week.
The international spot gold market saw a dip of 0.15%, with prices settling at $1,922.22, compared to the previous close. Interestingly, gold had managed to eke out a slight gain of 0.09% during the previous week, marking two consecutive weeks of appreciation.
One significant factor contributing to the bearish sentiment in the gold market is the dwindling holdings of global gold exchange-traded funds (ETF). Praveen Singh, Associate Vice-President at Sharekhan, noted that this decline in holdings reflects a lackluster demand from investors. He also pointed out that the prospects of higher yields in the near future are putting pressure on the precious metal.
Fed uncertainty casts shadow
The unease among investors stems from the Federal Reserve officials' recent cautionary statements. Despite voting to maintain the benchmark interest rate at its current level last week, three policymakers within the Fed expressed uncertainty about the ongoing battle against inflation and hinted at the possibility of future rate hikes.
It is worth noting that higher interest rates tend to discourage investments in non-interest-bearing assets like gold, particularly since gold is priced in U.S. dollars.
Adding to the complex financial landscape, the U.S. dollar remains robust, hovering around a more than six-month high. Concurrently, benchmark 10-year Treasury yields are nearing their 16-year peak.
In addition to these global economic indicators, recent reports have revealed that U.S. business activity remained relatively unchanged in September, according to a survey published on Friday. Another survey highlighted concerns about the Eurozone economy, suggesting it may contract this quarter and may not return to growth anytime soon.
Meanwhile, the Bank of Japan decided to maintain its ultra-low interest rates and reaffirmed its commitment to achieving a sustainable 2% inflation target.
Eyes on PCE price index
Investors are eagerly awaiting the release of the PCE price index on September 29, which is considered the Federal Reserve's preferred measure of inflation. Simultaneously, they are keeping a watchful eye on developments in Washington, where U.S. lawmakers are locked in negotiations over a spending bill.
The looming September 30 deadline adds pressure to avert a potential government shutdown.
International spot silver also experienced a decline, currently trading at $23.48, down by 0.33% on the day.
As the financial world continues to navigate these uncertain waters, gold prices remain sensitive to the evolving economic landscape, with investors poised for further developments from central banks and government policymakers.