Gold prices drop as odds of a March interest-rate hike jump
New York (Mar 1) Gold prices took a hit on Wednesday as investors absorbed fresh comments from U.S. Federal Reserve officials, who dropped hints that an interest-rate increase as early as March was up for consideration.
Gold for April delivery GCJ7, -0.77% fell $12.70, or 1%, to $1,241.20 an ounce after posting a gain of roughly 3.5% for the month of February. Silver for May delivery SIK7, -0.32% lost 8.4 cents, or 0.5%, to $18.375 an ounce.
Late Tuesday, San Francisco Fed President John Williams said an interest-rate rise “is on the table for serious consideration” at the Fed’s policy meeting in mid-March.
Ahead of Williams’s speech, New York Fed President William Dudley said the case for a interest-rate hike had become “a lot more compelling.” Speaking to told CNN International Tuesday, Dudley added that “animal spirits have been unleashed a bit” in the U.S. stock market, which has been rallying since the election of President Donald Trump.
Those comments helped lift the dollar, as the ICE U.S. Dollar Index DXY, +0.35% moved up 0.7% to 101.84. Commodities priced in dollars often trade inversely to the U.S. currency, as moves in the dollar can influence the attractiveness of those commodities to holders of other currencies. Gold doesn’t pay interest, and in times of higher interest rates, currencies like the dollar appear more attractive to investors.
“There was a major disconnect between the markets and the rate-increase expectations. However, we are closing that gap and closing it very fast,” said Naeem Aslam, chief market analyst at ThinkMarkets.
He noted that the odds stand at nearly 80% for an interest-rate increase in March, from 50% on Monday.
Dudley “moved the needle substantially” with his comments, according to Aslam. “This is a [policy committee] member who is known as being a dove, so change of his stance on a rate increase wasn’t going to go unnoticed,” he said.
The rest of the week brings more Fed speakers, with Fed Gov. Lael Brainard due to appear Wednesday afternoon. Dallas Fed President Rob Kaplan will speak Wednesday evening. But Fed Chairwoman Janet Yellen’s speech on Friday will likely draw the most attention.
Aslam said political uncertainty in Europe—upcoming elections and more Brexit negotiations—would keep losses for gold in check. Others have maintained that gold remains attractive as a haven investment, as investors wait for more details on tax-cutting plans or fiscal spending from Trump.
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President Donald Trump's speech first speech to Congress was a conventional speech for an unconventional president filled with more subdued tones and calls for unity.
At his address to Congress, Trump called for major infrastructure spending of around $1 trillion, but didn’t reveal any key details about his economic plans.
Meanwhile, over in France, French presidential candidate François Fillon “had a major setback, and despite him saying that he is going to stay in the race,” said Aslam. “We think Marine Le Pen will use this opportunity to cover more ground.
“So, the pull back in gold could be a perfect opportunity to place your hedge due to the political turmoil brewing in Europe, which may derail the markets,” said Aslam.
In other metals, copper HGK7, +0.66% for May delivery rose 1.5 cents, or 0.6% to $2.729 a pound. Platinum PLJ7, -1.06% for April delivery fell $13.70, or 1.3%, to $1,017.10 an ounce. PAM7, +0.60% for June delivery added 35 cents, or less than 0.1%, to $772.05 an ounce.
Source: MarketWatch
