Gold prices fell to a more than one-year low on Thursday (21), as investors awaited the European Central Bank’s (ECB) policy announcement, as the prospect of aggressive policy tightening by major central banks weighed on the non-interest-bearing metal’s appeal.
Spot gold dropped 0.8 percent to $1,682.43 per ounce, its lowest level since March 2021.
Gold futures in the United States fell 1.2 percent to $1,680.30.
The ECB had previously indicated that it would raise interest rates by 25 basis points at its policy meeting on Thursday, but a larger-than-expected increase is also seen as possible given rising inflation.
“Gold remains as sensitive to central bank hikes as ever, and we expect it to take another hit today if the ECB raises rates by 50 basis points as concerns become reality,” said City Index senior market analyst Matt Simpson.
The metal is also seeing a secondary reaction as a result of its drop below $1,700, a key level that some expected to hold for longer than it did, according to Simpson.
The US Federal Reserve is also expected to raise rates by 75 basis points at its meeting next week.
Higher interest rates make it less appealing to hold gold, which does not pay interest. Gold, on the other hand, is regarded as a safe haven and a means of protecting against inflation.
Because the US Dollar increased slightly, gold became more expensive for those holding other currencies.
“Clearly, inflation expectations are declining as the Fed and other central banks embark on an aggressive tightening regime, undermining gold’s appeal,” said Ilya Spivak, currency strategist at DailyFX.