Gold Bulls Get a Wake Up Call as U.S. Rate-Hike Odds Surge

  • Futures set for biggest loss in five weeks on Fed rate outlook
  • Attention turns to Yellen after Trump’s speech to Congress

Citigroup Sees Gold Topping $1,300 This Year

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.
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