Gold futures fell to a two-week low as the dollar strengthened amid speculation that the Federal Reserve will raise U.S. interest rates this year.
The greenback climbed to a one-month high against a basket of 10 currencies, cutting demand for gold as an alternative investment. Accelerating inflation and jobs growth mean the “time is near” for a rate increase, Fed Bank of Cleveland President Loretta Mester said Monday.
Gold swung between year-to-date gains and losses more than 10 times in 2015, gyrating as traders tried to gauge when policy makers are likely to raise borrowing costs. Higher rates drive investors to favor assets that pay interest, including new bonds, curbing the appeal of gold, which generally offers returns only through price gains.
“The Fed comments are quite hawkish, and we’re seeing the dollar index exploding and gold under an immense amount of pressure because of it,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said in a telephone interview.
Gold futures for August delivery declined 1.4 percent to settle at $1,187.80 an ounce at 1:46 p.m. on the Comex in New York. The metal touched $1,185.60, the lowest for a most-active contract since May 12. Trading on all monthly contracts doubled compared with the 100-day average, according to data compiled by Bloomberg.
The price dropped 1.7 percent last week. Inflation rose more than forecast in April, government figures showed Friday, and Fed Chair Janet Yellen said the same day it would be “appropriate” to raise rates this year if the economy improves.
Orders for capital equipment rose in April for the second straight month, government data showed Tuesday. That signaled business investment may pick up in the second half of the year.
“Some of the durable-goods data was good,” prompting more selling for precious metals, Streible of RJO Futures said.
Silver futures for July delivery declined 1.8 percent to $16.746 an ounce, the biggest drop in a week.
Platinum futures for July delivery fell 2.1 percent to $1,124.10 an ounce on the New York Mercantile Exchange.
Palladium futures for September delivery declined 0.5 percent to $781.20 an ounce, the first drop in a week. Volume more than tripled compared with the 100-day average, according to Bloomberg data.
Markets in the U.S. were closed on Monday for a public holiday.