Gold Falls As Fed Rate Rise Speculation Boosts Greenback

19—May (WSJ) — Gold prices were slightly weaker in London Thursday, as growing expectations of a Fed interest rate increase supported the dollar.

Spot gold was down 0.3% at $1,254.84 a troy ounce in morning European trade, having hit a three-week low earlier in the session at $1,252.50 an ounce.

“Commodities, including gold and oil, took a hit from the repriced Fed odds,” said ANZ Research in a note.

The Federal Open Market Committee released the minutes from its last meeting late on Wednesday, with the market interpreting the tone as hawkish in its indication of the month of June as a strong possibility for the next increase in U.S. rates.

Markets are now pricing a 30% chance of a Fed hike by June, said ANZ.

The greenback firmed in the aftermath, as rate rises tend to boost the dollar and weigh on dollar-denominated gold. The WSJ Dollar Index was recently up 0.02% at 87.52, making the metal more expensive to buy for those holding other currencies.

Looking ahead, profit-taking could further chip away at the gold price.

“We would be wary in case fund longs start to take profits as their long positions have become quite extended in recent weeks,” says William Adams, head of research at Fastmarkets.

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