Gold Hits Monthly Low

Gold reached a 1-month low as hints of a Federal Reserve rate hike drove the dollar higher.

The dollar rose and gold prices suffered because there are heightened expectations of another U.S. Fed interest rate hike this year.

Gold prices fell after the U.S. dollar touched a one-month high against a basket of currencies.  This after Federal Reserve chief Janet Yellen said it would be “imprudent” to keep rates on hold until U.S. inflation reaches two percent.

This drove gold to a one-month low on Wednesday.  Furthermore, in the previous session gold suffered the biggest one-day loss in almost two years.

Traders weighed the likelihood of success for Republican tax-cut proposals as well as expectations for another rate increase by the Federal Reserve before year-end.

Precious metals are highly sensitive to rising U.S. interest rates.  Higher interest rates increase the opportunity cost of holding non-yielding bullion versus the dollar.

“A more hawkish shift in Fed policy expectations, good economic data, and optimism about tax reform are supporting the reflation argument.  This bodes badly for gold prices in the months ahead.” This according to Tyler Richey, co-editor of the Sevens Report.

Strong U.S. data on durable goods orders also put pressure on precious metals prices.

“That generally has traders confident that the U.S. economy is actually doing OK.  And that implies that the Fed may be more likley to hike the rates,” Melek said.

“I think they will most likely tell us that the Fed is ready to pull the trigger.”  This according to Bart Melek, head of commodity strategy at TD Securities.

The Bank of New York Mellon’s (BoNYM) interpretation of the FOMC’s overall message is that rate hikes are “still appropriate.

In the bank’s view, there were little changes to the Fed’s outlook.  What’s more, this messaging is considered hawkish versus market expectations.

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