Gold Extends Weekly Losing Run Amid ‘Hawkish’ Fed Commentary

Should Investors Move to Gold to Hedge Against Inflation?
  • Bullion retreats for third week in longest run since November
  • Fed’s Dudley says U.S. rates may increase in June or July

Gold fell for a third straight week, the longest stretch of such declines since November, amid speculation the Federal Reserve will raise interest rates as soon as next month.

QuickTake Gold’s Ups and Downs

Traders boosted bets that U.S. policy makers will raise interest rates in the next few months, spurred by comments from Fed officials this week calling for at least two rate increases this year, and minutes of the last Federal Open Market Committee policy meeting in April suggesting a rate increase would be appropriate in June if the economy continued to improve.

Gold rallied to a 15-month high earlier in May on expectations that the Fed would keep rates lower for longer amid risks to the global economy, adding to the appeal of owning non-interest-bearing assets. As the likelihood of a rate move increased, the dollar strengthened this week, cutting demand for gold as an alternative asset. Odds of a rate increase in June rose to 30 percent on Friday, up from 4 percent on Monday.

“Clearly the driver is the unexpected hawkish commentary by members of the FOMC,” Tai Wong, director of commodity products trading at BMO Capital Markets in New York, said in a telephone interview. “That has in the latter part of this week undercut gold.”

Gold for immediate delivery dropped 0.1 percent to $1,253.15 an ounce at 2:18 p.m. New York time, according to Bloomberg generic pricing. The metal is down 1.6 percent for the week and headed for a third straight decline, the longest stretch since Nov. 27.

New York Fed President William Dudley said on Thursday a June to July time frame for a hike was reasonable, while Richmond Fed President Jeffrey Lacker said there was a very strong case for a raise next month.

In other precious-metals news:

  • Holdings in gold-backed exchange-traded products have kept rising, even as prices retreated. Assets climbed 5.88 metric tons to 1,833.1 tons as of Thursday, the highest since December 2013, data compiled by Bloomberg show.
  • Gold futures for June delivery slid 0.2 percent to settle at $1,252.90 an ounce on the Comex in New York.
  • Silver futures for July delivery rose 0.2 percent to $16.532 an ounce.
  • On the New York Mercantile Exchange, platinum and palladium gained.
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