Following stronger-than-expected U.S. employment data, markets reassessed the Fed’s interest rate path. Although a hold at this week’s meeting is still widely expected, traders have increased their bets on a rate hike in October, putting pressure on gold, silver, and bitcoin.
Three categories of assets decline simultaneously
As of early Wednesday morning Eastern Time, spot gold fell approximately 2.4% to $4,161.63 per ounce; U.S. gold futures dropped about 2.2% to $4,194.90. Spot silver declined around 2% to $64.01, while silver futures fell approximately 1.6%. Bitcoin dropped about 1.3% to $61,049.25.
Market reassesses Fed policy path
CME FedWatch data shows that the market still expects a 98.2% probability that the Fed will hold rates steady next week. However, traders now believe the probability of a rate hike at the October meeting has risen to approximately 40%.
Following last Friday’s stronger-than-expected U.S. non-farm payrolls data, risk assets such as stocks have experienced a sell-off. On Wednesday, equity markets across Europe and Asia generally declined, and U.S. stock index futures continued to fall ahead of the open, indicating that markets are still adjusting to a more hawkish policy outlook.
Actual yields continue to exert pressure.
ING commodities strategist Ewa Manthey told CNBC that the current market focus has shifted from pure safe-haven demand to interest rates and inflation prospects. The situation in the Middle East has pushed up oil prices and increased inflation risks, thereby reinforcing expectations that central banks will maintain a tight stance for a longer period.
She noted that rising real yields are placing direct pressure on interest-bearing assets like gold and silver. Despite ongoing geopolitical tensions, higher yields and more hawkish interest rate expectations are currently driving prices, rather than safe-haven buying.
Bitcoin followed the decline in risk assets.
Rajiv Sawhney, Head of International Portfolio Management at Wave Digital Assets, said that over the past two days, correlations among various asset classes have risen, and the market appears to be undergoing a broad deleveraging. After positions became overly extended, investors were forced to sell assets that had previously performed well to cover losses in other positions.
Under this backdrop, Bitcoin also failed to strengthen independently but declined alongside precious metals and equities. The article cites several market participants who noted that, in the short term, precious metal prices may continue to face pressure unless U.S. yields decline or inflation data shows clear signs of cooling.
Additional context: The article also notes that Citigroup analysts warned this week that gold could fall another 20% by autumn; however, Wellington Management believes that gold could still receive medium- to long-term support if the dollar weakens or if major bond-holding countries adjust their reserve allocations.