Gold hits near two-week low on Fed chief’s hawkish stance

Gold extended declines on Monday, hitting its lowest in nearly two weeks after U.S. Federal Reserve Chair Kevin Warsh signalled that interest rate hikes may be needed to contain inflation.

Spot gold fell 0.7% to $44,423.84 per ounce by 0204 GMT, hitting its lowest since August 19. Prices fell more than 3% on Friday.

U.S. gold futures for December delivery declined 1.3% to $4,472.90.

“Gold is still licking its wounds after the hawkish tone struck by Warsh at Jackson Hole,” said Tim Waterer, chief market analyst at KCM Trade.

“The market is still digesting the shift in rate expectations: it remains to be seen whether Warsh’s inflation-fighting rhetoric will translate into an actual September hike.”

The Fed will “have work to do” if policymakers don’t get the confidence they need that inflation is heading down to 2%, Warsh said on Friday at the Jackson Hole economic symposium in Wyoming, coming closer than he has to acknowledging rate hikes may be needed to ease price pressures.

Markets currently see a 57% chance of a Fed rate hike in September, compared with 36% before Warsh’s comments, according to the CME FedWatch tool.

Though viewed as a hedge against inflation, gold typically loses appeal in a rising interest rate environment as it does not yield interest.

A series of U.S. labor market reports is due this week, including job openings, the ADP employment report, weekly jobless claims and nonfarm payrolls data.

“NFP has the potential to either extend gold’s post-Jackson Hole softness or provide the catalyst for a short-covering bounce,” Waterer said.

On the geopolitical front, U.S. forces struck two Iranian launchers on Iran’s Larak Island on Sunday, a U.S. official said, marking the first known American strikes on Iran since late July. Oil prices jumped after the news.

Among other metals, spot silver fell 0.5% to $66.01 per ounce, platinum declined 0.5% to $1,810.64 and palladium slipped 1.7% to $1,397.11.