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Gold drops as dollar gains on Powell’s rate hike warning

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Gold prices fell to a one-month low on

Monday as U.S. Federal Reserve Chair Jerome Powell acknowledged

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that a quick undo of the U.S. central bank’s rate tightening was

far from over, boosting the dollar.

Spot gold fell 0.6% to $1,727.20 per ounce by 1109

GMT after hitting its lowest since July 27 at $1,719.56 earlier

in the session.

U.S. gold futures dropped 0.6% to $1,738.90.

The dollar index scaled a 20-year high, making

greenback-priced bullion more expensive for overseas buyers.

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In a speech at the Jackson Hole central banking conference

in Wyoming, Powell’s remarks added to the tide of recent

policymakers pushing back against market expectations that the

Fed would dial back its monetary policy quickly.

“Gold is expected to remain suppressed as long as markets

believe that the idea for a dovish pivot by the Fed remains

premature, and take to heart the Fed’s message that rates are

due to stay elevated for longer,” said Han Tan, chief market

analyst at Exinity.

Bullion bulls may, however, “find comfort from recent

history whereby gold’s dips below $1,700 have proved

short-lived, with the psychologically-important mark having

offered strong support in recent years,” Tan added.

Markets are now largely pricing in a 75-basis-point rate

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hike at the Fed’s September meeting. Gold tends to suffer in

such an environment as rising rates increase the opportunity

cost of holding bullion.

Once the market digests the fact that interest rates are

likely to remain elevated for some more time, the focus will

turn to an economic slowdown caused by the hikes and that are

likely to support gold prices, said Sugandha Sachdeva, vice

president of commodity and currency research at Religare

Broking.

Elsewhere, spot silver fell 1.3% to $18.63 per ounce,

and platinum dropped 0.8% to $856.93.

Palladium rose 0.9% to $2,128.55.

(Reporting by Arundhati Sarkar and Eileen Soreng in Bengaluru;

Editing by Krishna Chandra Eluri and Maju Samuel)

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