Gold Falls as Dollar Advances, Bets Mount on Fed Rate Increase

Updated on
  • Federal Reserve policy makers meet on Tuesday and Wednesday
  • Gold gains have sputtered in July on Fed rate concern, dollar

Gold declined a third time in four sessions amid rising speculation that the Federal Reserve will raise U.S. interest rates this year.

Fed policy makers meet Tuesday and Wednesday. Signs of strength in the U.S. economy have prompted traders to increase odds of a rate increase by year-end to 49 percent, from 41 percent a week ago and about 12 percent at the beginning of the month. Higher rates are typically negative for gold because the metal doesn’t pay interest.

Gold’s 25 percent rally in the first half of this year has sputtered in July on Fed rate concerns and a stronger dollar, which cut demand for bullion as an alternative asset. The Bloomberg Dollar Spot Index has posted three straight weekly gains. Purchases in exchange-traded funds backed by gold have slowed after touching a three-year high on July 11, data compiled by Bloomberg show.

“The chatter about an interest-rate hike is working its way back into the system, and that’s why gold has been down,“ Phil Streible, a senior market strategist at RJO Futures in Chicago, said in a telephone interview. “The dollar also has been taking the steam out of the commodities rally.”

Gold futures for December delivery dropped 0.3 percent to settle at $1,327.20 an ounce at 1:37 p.m. on the Comex in New York.

In other precious metals:

  • Silver futures for September delivery dropped 0.2 percent to $19.647 an ounce on the Comex.
  • On the New York Mercantile Exchange, palladium gained, while platinum was unchanged at $1,088.40 an ounce.