Gold price holds near two-week low on concern about US rate hike
Manila-Philippines (May 27) Gold held near a two-week trough on Wednesday after sliding almost 2% in the previous session as upbeat US economic data strengthened the expectation that the Federal Reserve may be on course to raise interest rates this year.
The dollar also held on to broad gains following a rally that pushed bullion to its steepest single-day fall since April 30.
Spot gold was little changed at $1,188/oz by 3.07am GMT. It dropped to $1,185.35 on Tuesday, its weakest since May 12.
"I think the Fed would raise rates at least once this year and it’s likely in September," Phillip Futures analyst Howie Lee said.
While recent data suggested that US economic activity was picking up after a first-quarter slack, Mr Lee said the overall picture remained soft and the Fed could need more evidence before raising rates.
"There could be unwarranted optimism on the US economy and I think we still need a few more months of solid data before we can conclude that the rebound is in place," he said.
A gauge of US business investment spending plans rose for a second consecutive month in April and consumer confidence perked up in May, adding to signs economic growth was gaining pace after sputtering in the first quarter. US new home sales also climbed in April. The strong US data was in line with Federal Reserve chairwoman Janet Yellen’s upbeat comments last week that indicated the US central bank was poised to raise interest rates later this year.
Ms Yellen’s comments had fuelled the dollar’s rally to an eight-year high versus the yen and it also rose against the euro, making dollar-denominated assets such as gold more costly for buyers using other currencies.
INTL FCStone analyst Edward Meir said investors could be pricing in a firm US economic recovery prematurely and that the next flash point could come on Friday when first-quarter gross domestic product could be revised to show a drop versus the initial estimate of 0.2% expansion.
"This, in turn, should jolt the markets into realising just how much more the US economy needs to improve in order to get anywhere close to Janet Yellen’s optimistic growth projections and possibly weaken the dollar in the process," Mr Meir said in a note.
US gold for June delivery was nearly flat at $1,187.80/oz.
Silver was up 3c or 0.18% at $16.74, platinum fell $1 or 0.09% to $1,122 and palladium gained $3.50 or 0.45% to $780.50.
Source: Reuters
