Gold drops to 7-week low on Fed rate hike prospects

25-May (Reuters) – Gold fell to a seven-week low on Wednesday after upbeat U.S. home sales data in the previous session boosted expectations that the Federal Reserve will press ahead with interest rate hikes in the near term.

The metal has fallen more than 4 percent since Fed meeting minutes last Wednesday revived expectations for an imminent rate increase. Gold is sensitive to rising interest rates, which
increase the opportunity cost of holding non-yielding assets.

“It all does hinge on the Fed’s intentions for June,” Mitsubishi analyst Jonathan Butler said.

“We had surprisingly hawkish minutes last week which put the June rate rise back on the cards. That certainly has made life tough for gold, because the dollar’s rallied, 2-year Treasury yields have rallied, even 10-year yields have rallied somewhat.”

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