Gold prices XAU/USD took a hit on Tuesday, as investors reacted to comments by Federal Reserve Chair Jerome Powell about the US central bank’s potential interest rate hikes.
The yellow metal plummeted by over 1.4% to $1,821.41 per ounce at 15:30 GMT.
The drop in gold prices came after Powell spoke to US lawmakers on Tuesday, warning that the Federal Reserve may need to raise interest rates more than anticipated in response to the recent surge in strong economic data. He also suggested that if needed, the central bank could take larger steps to control inflation, a move that could come sooner than anticipated.
Powell’s hawkish remarks rattled the market, causing the dollar index to surge by almost 1%, which in turn made gold more expensive for overseas buyers. This further pressured the yellow metal, which had already been in retreat since Friday’s strong close.
The hawkish tone of Powell’s remarks also caused the US stock indexes to fall.
On Friday, the US jobs report for February is due. The upcoming data could provide more insight into the future of interest rates. If Friday’s job numbers show significant strength in the US labour market, this could lead to even higher US interest rates, potentially unwinding the month-to-date gains garnered by gold.
Spot silver also lost ground on Tuesday, falling by 3.2% to $20.37 per ounce. Powell’s comments also put pressure on silver, which is often seen as a more volatile asset than gold.