Gold holds near 4-month low as U.S. rate hike looms

Gold hovered near its lowest level since March on Thursday after Federal Reserve Chair Janet Yellen reiterated that a U.S. interest rate increase is likely this year, buoying the dollar at bullion’s expense. Yellen said the U.S. central bank remains on course to raise interest rates this year, with labour markets expected to steadily improve and turmoil abroad unlikely to throw the U.S. economy off track.
Gold Rates
Yellen’s comments were in line with her recent remarks along with the most recent policy statement by the Federal Open Market Committee, which will meet next on July 28-29. Yellen is expected to repeat those comments when she testifies before the Senate Banking Committee on Thursday. Spot gold was off 0.3 percent at $1,145.85 an ounce by 0241 GMT, close to Wednesday’s trough of $1,143.43, its weakest since March 17.
A potential U.S. rate hike has been discussed in financial markets as early as 2013, and gold has already fallen as a consequence, said HSBC analyst James Steel. “This leads us to conclude that most of gold’s declines based on a rate rise have already occurred, and that gold’s reaction to the rate hike – whenever it comes – and subsequent hikes, may be muted or short-lived,” Steel said in a note.
“This reinforces our view that gold prices are likely to stay above $1,100/oz although they may remain weak due to momentum selling near term.” A looming U.S. rate hike boosts the dollar, putting dollar-priced assets such as gold out of favour as they become more expensive for buyers holding other currencies.
U.S. gold for August delivery eased 0.2 percent to $1,145.20 an ounce. Spot silver dropped 0.5 percent, platinum eased 0.9 percent and palladium dipped 0.6 percent. There was more evidence of U.S. economic growth improving, with industrial production rebounding last month and factory activity in New York state picking up in July.
Premiums for physical gold on the Shanghai Gold Exchange picked up slightly to $2-$4 an ounce over spot, although analysts say a slowing economy could cap demand from China, the world’s top gold consumer. Gold imports by No. 2 consumer India dropped 37 percent in June from a year earlier to $1.96 billion, the country’s trade ministry said on Wednesday.

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