On Thursday, gold tumbled to its lowest level in 6 weeks. A sharp drop came amid increased risk appetite: main US stock indices closed higher.
On September 23, the precious metal dropped to the lowest level in a week. On Wednesday, the asset added 0.1% and tumbled by 1.6%, or $29, yesterday, closing at $1,749.8, the lowest level since August 10.
Silver plunged by 1%, or $0.23, on Thursday. The price closed at $22.68. On Wednesday, silver gained 1.3%.
The precious metal market came under pressure due to several negative factors. First and foremost, demand for risk assets increased yesterday. Main US stock indices skyrocketed amid reports on China's property giant Evergrande.
The company announced it had "resolved" interest payments for an onshore bond due this week and the markets breathed a sigh of relief.
The FOMC meeting that took place this week also boosted the US stock market. Federal Reserve Chair Powell talked about the growth prospects of the US economy and the pace of labor market recovery. After his speech, risk appetite increased, affecting the price of gold.
A spike in 10-year bond yields caused a sharp fall in the price of gold on Thursday. Yesterday, the daily Treasury yield soared to its highest level of 1.41%, unseen in 7 months.
A sharp increase came after the September FOMC meeting. The US regulator decided to keep interest rates unchanged. At the same time, it plans to start reducing bond-buying soon and raise interest rates by the end of the next year.
According to OANDA analysts, the Fed's hawkish rhetoric exerted pressure on gold. They expect the price to fall in the short term. Investors will continue digesting the outcome of the FOMC meeting. Consequently, the gold bullion can tumble to $1,740.
On Friday, gold is trying to recover. At the moment of writing, the asset was trading up by 0.06%, or $1.05, settling at $1,750.85.
The latest labor market report provides support to the asset. Initial jobless claims increased to 351K from 335K in the week to September 17. Continuing claims soared by 131K to 2,710,000.
On Thursday, preliminary manufacturing PMI dropped to 60.5 from 61.1, reflecting an uneven recovery of the US economy.
If even more disappointing economic data comes out, this may urge the Fed to again delay tapering. In such a case, gold is likely to increase.
GraniteShares analyst Jeff Clearman says that despite a hawkish Fed, the precious metal has growth prospects because interest rates remain at a historically low level and the situation is not going to change in the short term.