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Gold drops to 7-week low on Fed rate hike prospects

LONDON, May 25, 2016

Gold fell to a seven-week low on Wednesday after upbeat US home sales data in the previous session boosted expectations that the Federal Reserve will press ahead with interest rate hikes in the near term.

The metal has fallen more than 4 percent since Fed meeting minutes last Wednesday revived expectations of an imminent rate increase. Gold is sensitive to rising interest rates, which increase the opportunity cost of holding non-yielding assets.
    
Spot gold was down 0.5 percent at $1,220.41 an ounce at 1415 GMT, off an earlier low of $1,217.25. US gold futures
 for June delivery were down $8.20 at $1,221.00.

"The economic data is firming up in the US and this is making the dollar stronger," Naeem Aslam, chief market analyst
at Think Forex, said. "Traders are of the mind-set that the Fed will increase the interest rate in June."
    
The dollar hit a two-month high against a basket of currencies on Wednesday on expectations the Fed will raise rates
in the near term, though it gave up gains against the euro on relief that there was progress in Greek bailout talks.

Growing confidence in a pick-up in US economic growth was fed on Tuesday by data suggesting new U.S. single-family home sales have hit their highest in eight years.

Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, fell 3.9 tonnes on Tuesday to
868.66 tonnes, its first decline in a month.

"It all does hinge on the Fed's intentions for June," Mitsubishi analyst Jonathan Butler said.  "We had surprisingly hawkish minutes last week which put the June rate rise back on the cards. That certainly has made life tough for gold, because the dollar's rallied, 2-year Treasury yields have rallied, even 10-year yields have rallied somewhat."

Price-sensitive gold buyers in Asia were active overnight, but were unable to consistently lift prices.

Among other precious metals, silver was up 0.8 percent at $16.33 an ounce, after dipping to a five-week low of
$16.14 earlier in the session. Palladium was down 0.5 percent at $528.50 an ounce, off a 12-week low of $520.60 reached earlier in the day. Platinum was at $992.75 per ounce, down 0.4 percent, after touching a five-week trough of $985.50. - Reuters




Tags: Gold | Dollar | Fed |

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