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Gold Posts Biggest Drop in 3 Months on Powell's Reappointment

Higher rates hurt gold because they help limit inflation, and gold is often bought as a hedge against inflation.
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Gold dropped 2.45% Monday, its biggest decline in three months, as the reappointment of Jerome Powell as Federal Reserve chairman pushed interest rates higher.

December gold futures closed at $1,806 on the Comex, down $45.30. Gold prices have slid 5% so far this year.

Higher rates hurt gold because they help limit inflation, and gold is often bought as a hedge against inflation. Consumer prices soared 6.2% in the 12 months through October.

President Joe Biden announced Monday that he’s reappointing Powell. And under Powell’s chairmanship, the central bank has indicated it will begin tapering its bond purchases this month and finish around the middle of next year.

Many economists expect a Fed rate hike around the middle of next year. The 10-year Treasury yield rose 9 basis points Monday to 1.62%.

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The dollar’s rise to an almost 14-month high, as measured by Bloomberg’s Spot Dollar index, also hurt gold. That’s because gold is priced in dollars, making it more expensive now for foreign buyers. Gold also is seen as a hedge against dollar declines.

But the focus was on Powell. 

“Gold sold off on notions that maybe the Fed would keep on its present monetary policy path as opposed to a Lael Brainard nomination,” which would have raised concern about more dovish policy, Jim Wyckoff, senior analyst at Kitco Metals told CNBC.

Meanwhile, Edward Moya, senior market analyst at brokerage OANDA, told CNBC, “The move higher with real yields has accelerated some of gold’s weakness, but it is way too early for investors thinking this is the beginning of a sustained trend.”