Gold dives as hawkish Fed outlook overrides haven demand

Gold prices edged lower on Friday and were on track for a weekly decline after a series of hawkish signals from Federal Reserve officials deflated expectations for a pause in interest rate hikes anytime soon.

Spot gold dipped 0.1% to $1,952.17 per ounce by 11:15 GMT on Friday. Still, prices remained well above the psychological $1,900 level as some buyers emerged after a sharp selloff earlier in the week.

Gold saw some profit-taking in early November, retreating from a 10% rally in October that had lifted prices to over three-week peaks. But mounting recession concerns have kept investors interested closer to the $1,900 mark.

Bullion prices initially bounced on Thursday after a weak Treasury auction boosted bond market volatility and stirred some safety buying. However, a spike in Treasury yields capped the upside as markets repriced expectations for Fed policy.

The U.S. dollar rebounded this week from six-week lows, following hawkish Fed rhetoric. On Thursday, Fed Chair Jerome Powell said the central bank remains unconvinced that policy is sufficiently restrictive. He warned sticky inflation could lead to further hikes.

Other Fed officials made similar comments this week, leading markets to lower expectations for rate cuts in 2024.

But some analysts say gold will find support from late-cycle recession risks, especially if the Fed has to reverse course next year.

Gold remains locked in a tug-of-war from declining haven demand as geopolitical risks ease, against some buyers looking to hedge inflation and market volatility risks.