Gold Bulls Get a Wake Up Call as U.S. Rate-Hike Odds SurgeBy and
Futures set for biggest loss in five weeks on Fed rate outlook
Attention turns to Yellen after Trump’s speech to Congress
Gold investors are waking up to the reality of an increasing probability that borrowing costs in the U.S. could rise this month.
Bullion futures fell for a second day as the odds that the Federal Reserve will boost interest rates this month jumped to 80 percent on Wednesday, from 52 percent a day earlier and 34 percent last week, according to Fed fund futures data compiled by Bloomberg. Higher rates curb the investment appeal of non-interest bearing gold, while boosting the dollar.
Gold, which rallied more than 8 percent this year, has been thrown into reverse amid a rapid rethink by investors as Fed officials signaled more willingness to consider a rate hike this month. The Fed’s preferred measure of consumer prices climbed 1.9 percent from a year earlier, just shy of its 2 percent target that was last met in April 2012, according to a government report on Wednesday.
The slump in gold prices “is due to a firmer U.S. dollar and significantly higher rate hike expectations in the U.S.,” Commerzbank AG analysts including Eugen Weinberg said in a note. The precious metal may see more downward pressure, should Fed Chair Janet Yellen’s speech Friday point to a rate hike soon, Commerzbank analysts wrote Wednesday.
Gold futures for April delivery slipped 0.3 percent to settle at $1,250 an ounce at 1:45 p.m. on the Comex in New York. The Bloomberg Dollar Spot Index gained 0.2 percent.
On Tuesday, New York Fed President William Dudley said the case for tightening had become a lot more compelling, while the San Francisco Fed’s John Williams said he expects a rate rise will receive “serious consideration” at the March 14-15 meeting.
In other precious metals:
- Silver futures rose declined on the Comex.
- Palladium futures gained on the New York Mercantile Exchange, while platinum futures slipped.