Gold price slides as dollar surges on Fed rate hike view
London (Sept 27) Gold slid further on Wednesday, adding to its biggest loss in almost two years the previous session on rising expectations the U.S. Federal Reserve will raise interest rates again this year.
The dollar touched a one-month high against a basket of currencies after Federal Reserve chief Janet Yellen said on Tuesday it would be "imprudent" to keep rates on hold until U.S. inflation hits 2 percent.
Markets are pricing in a 76 percent chance the Fed will raise borrowing costs in December, compared with less than 20 percent only a month ago. Several other senior Fed officials are scheduled to speak on Wednesday.
Spot gold fell 0.3 percent to $1,290.31 per ounce by 1014 GMT after tumbling 1.3 percent in the previous session to trade near a month low of $1,287.61.
U.S. gold futures for December delivery fell 0.7 percent to $1,293. "At the moment the dollar is weighing on gold but it will not continue at this pace (longer term)," said Commerzbank analyst Carsten Fritsch.
"The fact that there's going to be a rate hike in December will cap gains in gold, on the other hand North Korea (tensions) will prevent a price decline, and there's the risk of a (long
overdue) stock market correction."
Gold is highly-sensitive to rising U.S. interest rates, as
these increase the opportunity cost of holding non-yielding
bullion, while boosting the greenback, in which it is priced.
Equities rose as President Donald Trump's administration
prepared to outline a new tax plan to boost growth later in the
session, prompting investors to buy assets perceived as risky
over those seen as safe havens, like gold.
Limiting losses in gold however were lingering tensions
between the U.S. and North Korea.
"Gold lost what it gained on North Korea (tensions) since
Friday after Yellen's comments," said Yuichi Ikemizu at ICBC
Standard Bank in Tokyo.
"But I think the (North Korea) situation is more serious
than the Fed's policies. So gold is supported around here and I
expect prices to go back up to $1,300."
Trump warned North Korea on Tuesday that any U.S. military
option would be "devastating" for Pyongyang, but said the use of
force was not Washington's first option.
Silver rose 0.3 percent to $16.81 per ounce. In the
previous session, prices dropped 2.4 percent, their biggest one
day fall since mid-August.
Platinum rose 0.3 percent to $924.20 per ounce, after
slipping about 2 percent in the previous session, its biggest
fall since early July.
Palladium rose 0.2 percent to $916.15.
Reuters
