Gold price near three-week lows on Fed rate expectations

London (May 23) Gold dipped on Monday to a near three-week low on expectations  the Federal Reserve will hike interest rates as early as June.

Bullion has been under pressure since the Fed last week released the minutes of its April meeting, which showed officials believe the U.S. economy could be ready for another
interest rate increase next month. 
    Higher interest rates increase the opportunity cost of
holding non-yielding bullion.
    Eric Rosengren, president of the Federal Reserve Bank of
Boston, said on Friday that conditions for a rate increase are
"on the verge of broadly being met".
    "The Fed minutes were clearly more hawkish than expected and
this has resulted in some change in sentiment and there is now
an increased likelihood that they may raise rates in June or
July," ABN Amro analyst Georgette Boele said.
    Spot gold was down 0.2 percent at $1,249.96 an ounce
at 0958 GMT, not far from $1,244 touched last week, the lowest
since April 28. U.S. gold futures also dipped 0.2
percent to $1,250.60.
    Gold's downside was limited by a lower dollar, which fell
against the yen after robust trade data from Japan on Monday,
but managed to remain close to its highest in nearly two months
against a basket of major currencies, reached last week after
the Fed minutes. 
    A lower dollar makes dollar-denominated assets such as gold
more expensive for other currency holders.
    "We see gold continuing to work lower over the course of the
coming week, as an upward trending dollar should continue to
weigh in on prices," said INTL FCStone analyst Edward Meir.
    The Fed's policymakers are scheduled to speak this week and
are expected to back the case for a rate hike within months. Fed
Chair Janet Yellen will be at a panel event hosted by Harvard
University on Friday. 
    "The comments from Yellen will absolutely be a test for the
dollar and consequently for gold," ABN Amro's Boele said.
    Holdings in the world's largest gold-backed ETF SPDR Gold
Trust rose 1 percent to 869.26 tonnes on Friday, the
highest since November 2013.
    Spot silver dropped 0.8 percent to $16.34 an ounce,
spot platinum was unchanged at $1,018 an ounce and spot
palladium fell 1.4 percent to $549.70 an ounce.

Source: Reuters