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Gold heads for weekly drop amid mixed signals from Fed officials

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Gold headed for the first weekly decline in five as traders weighed mixed signals from Federal Reserve officials on the size of the next interest-rate increase.

Bullion dropped to a three-week low amid an ongoing discussion on whether the Fed will shift to less aggressive rate hikes. The policy makers offered divergent views, with St. Louis’s James Bullard urging another 75 basis-point move while Kansas City’s Esther George struck a more cautious tone, saying the case for rate rises remains strong but the pace is up for debate.

Bullard told the Wall Street Journal in an interview published Thursday that he favored going big again, arguing “we should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation.”

But George, who hosts the Fed’s annual policy retreat next week in Jackson Hole, Wyoming, tilted dovish, saying that the policy decisions often operate on a lag, and the impact had to be monitored. In separate remarks, Minneapolis Fed chief Neel Kashkari said that “we have an inflation problem right now,” and that the central bank has to deal with it “urgently.”

“Gold may continue to struggle until there are clear signals from the Fed that rate hikes may slow down,” said Madhavi Mehta, a senior analyst at Kotak Securities Ltd.

The minutes from the Fed’s July meeting released Wednesday showed officials agreed on the need to dial back the pace of rate increases at some point. This saw traders readjusting bets on whether either 50, or another 75 basis points, were on the table for the Sept. 20-21 gathering.

Latest data pointed to a still-healthy US labor market, with jobless claims falling for the first time in three weeks. This potentially leaves the door open for the Fed to continue hiking aggressively, although fresh monthly readings on inflation and employment before the September meeting could influence the decision. Higher rates weigh on non-interest bearing bullion.

Spot gold fell as much as 0.4% to $1 751.91 an ounce, the lowest level since July 28, and traded at $1 753.18 as of 12:33 p.m. in Singapore. Prices are down 2.7% this week. The Bloomberg Dollar Spot Index rose 0.3% after climbing 0.6% in the previous session. Silver, platinum and palladium all dropped.

© 2022 Bloomberg

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