BS: Gold dips after the US Fed hints at rate hike lifts the dollar
Federal Reserve chairperson Janet Yellen suggests that US interest rates could rise sooner, seeing dollar climb to three-and-a-half-week high, stocks rally
London â€” Gold slipped on Wednesday, erasing the previous dayâ€™s slim gains, after Federal Reserve chairperson Janet Yellenâ€™s suggestion that US interest rates could rise sooner rather than later drove the dollar to a three-and-a-half week high. Yellen told the Senate banking committee on Tuesday that delaying rate increases could leave the Fedâ€™s policymaking committee behind the curve.
Gold is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced. Spot gold was down 0.2% at $1,225.49 an ounce at 10.35am GMT. "Gold prices are still under pressure after Yellenâ€™s comments yesterday. The US dollar is doing well," ABN Amro analyst Georgette Boele said. "Today we have consumer price index and retail sales in the US as well. Better data will likely push gold consistently below $1,220."
Yellenâ€™s comments boosted appetite for assets perceived as higher risk, such as equities, as well as the dollar. World stocks hit 21-month peaks and the US currency rose for the 11th straight day, while the dollar notched up its longest winning streak in almost five years
CME Groupâ€™s FedWatch data showed US interest rate futures implied about a 30% chance of at least three increases this year. "We remain cautious [on gold], given our expectation for solid growth, rising interest rates and a strengthening US dollar," Julius Baer said in a note.
The worldâ€™s largest physically backed gold fund, SPDR Gold Shares, said its holdings were unchanged on Tuesday. While it has seen inflows of 18 tonnes so far this year, this is well below the pace of increases a year ago, which saw inflows of 69 tonnes in the same period. Regulatory filings showed on Tuesday that Paulson & Co cut its stake in the fund as bullion prices posted their weakest quarterly performance in three and a half years, while Soros Fund Management got out of gold in the fourth quarter of 2016.
US gold futures for April delivery were up $1.20 an ounce at $1,226.60. Among other precious metals, silver was down 0.7% at $17.82 an ounce, off the previous sessionâ€™s three-month high of $18.07, while platinum was down 0.6% at $994.16 an ounce.
Palladium was up 0.4% at $782.30 an ounce, bucking the falling trend among other precious metals to rise in line with other cyclical assets. The metal, primarily used in autocatalysts, is more exposed than the others to the broader economic cycle.