Interest Rate Expectations Pressure Gold Below $1,200 In Holiday Trading
London (May 30) According to some analysts, gold prices remain on the defensive Monday, in thin holiday activity, as traders continue to price in a rate hike from the Federal Reserve some time during the summer.
Both U.S. and British markets are closed for holidays Monday and thin volume helped push gold future below the key psychological support level at $1,200 an ounce in electronic markets. Overnight gold prices hit a session low of $1,199 an ounce. Although prices have managed to push off those lows, they are still under pressure, last trading at $1,207.70 an ounce, down 0.50% on the day.
Alex Thorndike, senior precious metals dealer at MKS, said that traders are still digesting Fed Chair Janet Yellen’s comments Friday. At an event at Harvard University, she said she was optimistic that the U.S. economy will continue to expand and added that it could be appropriate to raise interest rates in a few months.
Despite growing interest rates pressures, he said he will be watching to see if gold can hold key support levels. “Gold has had a significant decline throughout May (-7.7%) and one would think we would be approaching an interim bottom in the near future. Next important supports include the 38.2% retracement of the Dec-May rally ($1205.50), the psychological $1200 level and then $1191,” he said in a report Monday.
Colin Cieszynski, senior market analyst at CMC Markets, said that momentum indicators for gold continue to point to lower prices. He said he is currently watching support at $1,193.
Analysts at Commerzbank said in a note Monday that the investor sentiment is similar to November where markets were preparing for a December rate hike. They noted that gold fell about $150, hitting its multi-year low at $1,050. They added that since its peak at $1,300 at the start of the month, gold has lost about $100.
“In other words, the gold price could still fall by around another $50,” they said.
Yellen’s comments are an echo of other Fed speakers who have come out recently in support of a rate hike sometime in June or July. Also adding to those voices was James Bullard, St Louis Federal Reserve President and voting member of the Federal Open Market Committee Meeting.
Speaking after a conference in Seoul South Korea during the weekend, he said that global markets are “well prepared” for a rate hike sometime in the summer. He noted there are signs that the U.S. economic growth has picked up momentum in the second quarter.
Gold has been under pressure for nine consecutive sessions as interest rate expectations have shifted, weighed down by higher bond yields and a stronger U.S. dollar. In electronic trading, June US dollar futures pushed to a session high of 95.96, its highest level since March 29.
Looking at interest rate expectations, CME 30-day Fed Fund futures are pricing in a 28% chance that the U.S. central bank raises interest rates at its June meeting, up 2 percentage points from Friday; at the same time, markets are pricing in a 48% chance of a hike in July, up almost three percentage points from Friday.
Source: KitcoNews
