Gold Price Extends Weekly Losing Run as Rate Outlook Signals ‘Beating’
New York (May 20) Gold is heading for the longest run of weekly losses this year because of the Federal Reserve.
QuickTake
Gold’s Ups and Downs
While the metal was little changed on Friday, it was set for a third weekly drop. Traders have boosted bets that U.S. policy makers will raise interest rates in the next few months, spurred by comments from Fed officials, minutes of the last policy meeting and quickening inflation.
“The hawkish minutes from the Fed meeting and economic data shows an increasing chance of a rate hike in June or July,” Jens Naervig Pedersen, a senior analyst at Danske Bank A/S in Copenhagen, said by phone. “That wasn’t priced in a few months ago and implies further upside for the dollar and quite a beating for gold.”
Gold rallied to a 15-month high earlier this month on expectations that the Fed would keep rates lower for longer amid risks to the global economy, adding to the appeal of owning non-interest-bearing assets. As the likelihood of a rate move increased, the dollar strengthened, cutting demand for gold as an alternative asset.
Gold for immediate delivery added 0.2 percent to $1,256.79 an ounce by 10:32 a.m. in London, according to Bloomberg generic pricing. It’s down 1.3 percent this week.
The odds of a rate rise by June or July are now at 28 percent and 47 percent, compared with 4 percent and 17 percent a week ago, Fed funds futures data show. Minutes of the Fed’s April meeting showed officials discussed raising rates as early as next month. New York Fed President William Dudley said on Thursday a June to July time frame for a hike was reasonable, while Richmond Fed President Jeffrey Lacker said there was a very strong case for a raise next month.
In other precious metals news:
•Holdings in gold-backed exchange-traded products have kept rising, even as prices retreated. Assets climbed 5.9 metric tons to 1,833.1 tons as of Thursday, the highest since December 2013, data compiled by Bloomberg show.
•Silver gained 0.4 percent to $16.5575 an ounce, cutting its weekly drop to 3.2 percent.
