Gold Posts Another Losing Week as Yellen Adds to Rate-Rise Angst

  • Bullion has lost more than 5% in May as higher U.S. rates seen
  • Other precious metals set for biggest monthly drop since Nov.

Gold looks very different than it did at the beginning of May. Along with platinum, palladium and silver, it is heading for the biggest monthly loss since November as investors anticipate higher borrowing costs in the U.S.

QuickTake Gold’s Ups and Downs

Bullion has pared this year’s rally after retreating more than 5 percent in May as the dollar rallied and investors raised bets on the Federal Reserve increasing interest rates as early as next month. Higher rates curb gold’s appeal against interest-bearing assets. Chair Janet Yellen spoke on Friday at Harvard University, saying an increase in rates in the coming months may be appropriate. The comments come after a number of regional Fed presidents have indicated their willingness to tighten policy.

There are still voices of caution. Fed Governor Jerome Powell on Thursday laid out a clear argument for raising rates while stressing that global risks meant there’s no reason to hurry. Jeffrey Gundlach, chief executive of DoubleLine Capital LP in Los Angeles, predicts the Fed will refrain from raising in June unless traders in the futures market assign a probability of at least 50 percent to such a move. 

“It looks like a rate hike is inevitable: whether it’s June or July, it seems like it’s baked in the cake and Yellen seems confident in her statement,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said by telephone. “For certain, gold will be under pressure for the foreseeable future.”

Gold futures for August delivery dropped 0.5 percent to settle at $1,216.70 an ounce at 1:47 p.m. on the Comex in New York. The metal is down 5.7 percent this month.

Fed officials will gather in Washington June 14-15 to decide whether to increase rates for the first time since December. Odds on the Fed increasing rates next month are 36 percent, while the probability of a move in July is close to 60 percent, according to Fed funds futures.

In ETFs and other metals:

  • Holdings in gold-backed exchange-traded funds added 1.5 metric tons to 1,844.9 tons as of Thursday, data compiled by Bloomberg show.
  • Silver futures for July delivery dropped 0.5 percent to $16.269 an ounce on the Comex.
  • On the New York Mercantile Exchange, platinum and palladium declined.
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