Gold Posts Longest Slump in Six Months on Fed Rate Signals

Gold Prices Are Still Solid
  • Dollar strengthens as traders raise bets on U.S. rate increase
  • ETF holdings still rising, at highest since November 2013

Gold had a fifth straight decline, the longest slump since November, as speculation that the Federal Reserve will raise interest rates as early as next month strengthened the dollar, denting demand for the metal as an alternative asset. A gauge of mining shares fell to a five-week low.

A dollar index rose to the highest since March as two more Fed officials signaled prospects for tighter monetary policy. Higher rates curb the appeal of non-interest-bearing assets like gold. Swiss customs data showed exports of bullion to India and China, the largest buyers, fell in April from a year earlier.

Gold slid 1.6 percent last week, extending a drop from the highest in more than a year, as minutes of the central bank’s April meeting indicated that rates may rise sooner than previously thought. The San Francisco Fed’s John Williams said Monday that two to three increases this year are still “about right,” a sentiment echoed by Philadelphia Fed President Patrick Harker.

“Gold is under pressure from a generally stronger dollar, notably low imports into India in April and hawkish comments from Harker,” Tai Wong, director of commodity products trading at BMO Capital Markets in New York, said in an e-mail.

Gold futures for June delivery declined 1.8 percent to settle at $1,229.20 an ounce at 1:40 p.m. on the Comex in New York. The slump is the longest since Nov. 6.

A gauge of 14 gold producers tracked by Bloomberg Intelligence slumped as much as 4.7 percent to the lowest since April 18, led by an 11 percent plunge for Kinross Gold Corp. and a 10 percent decline for Yamana Gold Inc. Both companies are based in Toronto.

Kinross said its unionized employees started a strike at the Tasiast mine in Mauritania. The producer said is unlikely to affect an expansion of the site. Andrew Kaip, an equity analyst with BMO Capital Markets, wrote in a note Tuesday that he doesn’t expect the strike to have a material impact on the company’s performance.

The odds of a rate rise by July are now at 54 percent, compared with 26 percent at the start of May, Fed funds futures data show. Increasing chances of a rate hike in June are likely to weigh on gold, Australia & New Zealand Banking Group Ltd. said in a report. Fed Chair Janet Yellen is due to deliver remarks on Friday.

In other metals news:

  • Silver futures slipped on the Comex in New York, while palladium and platinum declined on the New York Mercantile Exchange.
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