Gold Futures Slump to One-Month Low Amid U.S. Rate Uncertainty

  • `Perhaps gold has seen short-term highs,' BMO's Wong says
  • Odds of September rate increase still at more than 50 percent

Gold struggled to erase losses after slumping to the lowest in more than a month as investors sift through clues on the Federal Reserve’s next move on interest rates.

Federal Reserve Bank of San Francisco President John Williams said Monday the global economy was having a significant impact on measures U.S. policy makers watch to determine interest rates. While the odds of an interest rate increase by September fell from a week earlier, they remained above 50 percent, Fed funds futures data compiled by Bloomberg show. Higher borrowing costs curb the appeal of gold against interest-bearing assets.

Since March 4, gold futures managed to post gains only three times. Prices have fallen since trading at the highest in more than a year on March 11 amid mounting signs the U.S. economy may be resilient enough to withstand another interest rate increase, even as global growth slows. On Friday, government data showed the U.S. economy grew in the fourth quarter at a faster pace than the previous estimate, and on Monday, data showed incomes rose, pushing the savings rate to a one-year high.

“Perhaps gold has seen short-term highs,” Tai Wong, the director of commodity products trading at BMO Capital Markets in New York, said in a telephone interview.

Gold futures for June delivery slipped 0.1 percent to settle at $1,222 an ounce at 1:39 p.m. on the Comex in New York, after touching $1,207.70, the lowest intraday for a most-active contract since Feb. 23. Gold pared losses after the dollar weakened against a basket of its counterparts, making commodities cheaper in other currencies.

Gold’s renewed weakness is in line with the outlook from bears including Goldman Sachs Group Inc., which has stuck with its forecast for a slump even as the metal gained this year. The bank gave a near-term target for $1,100 in a March 7 note, citing prospects for further strengthening of the U.S. economy.

Investors will also be watching a speech from Federal Reserve Chair Janet Yellen on Tuesday, when she’s due to speak at an event hosted by the Economic Club of New York. In the runup to next month’s gathering of the Federal Open Market Committee, Yellen has stressed that every session is a “live possibility” to raise rates.

  • While prices have been dropping, investors have continued to expand their holdings in bullion-backed exchange-traded funds. The assets rose for an eighth day to 1,770.5 metric tons on March 24, the highest level since December 2013, according to data compiled by Bloomberg.
  • Silver futures slipped on the Comex, while palladium and platinum fell on the New York Mercantile Exchange.
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