August 22, 2016 / 9:50 AM / 3 years ago

PRECIOUS-Gold slides to two-week low on talk of U.S. rate hike

* Gold hits two-week low, silver lowest in 7 weeks
    * Speculators cut bullish bets on gold, silver
    * GRAPHIC-2016 asset returns:

 (Updates prices, adds comment)
    By Jan Harvey
    LONDON, Aug 22 (Reuters) - Gold hit a two-week low on Monday
as upbeat comments from Federal Reserve officials on the U.S.
economy boosted expectations that the central bank could lift
interest rates sooner rather than later.
    The Fed's No.2 policymaker, Stanley Fischer, said on Sunday
the Fed is close to hitting targets for full employment and 2
percent inflation. 
    That followed comments last week from New York Fed President
William Dudley that the labour market is improving, and from San
Francisco Fed chief John Williams that waiting too long to lift
rates could be costly for the economy. 
    Gold is highly sensitive to rising U.S. interest rates,
which boost the opportunity cost of holding non-yielding gold,
while lifting the dollar, in which it is priced.
    Spot gold was down 0.3 percent at $1,336.99 an ounce
at 1330 GMT, while U.S. gold futures for December
delivery were down $4.90 an ounce at $1,341.30.
    "We definitely think the U.S. recovery is on track.
Inflation is starting to pick up, employment is pretty much at
the natural rate, so everything is coming together to suggest
there's a very high probability of a rate hike before the end of
the year," Dan Smith, analyst at Oxford Economics, said. 
    "I don't think that's wholly priced in (to gold). It does
have the potential to have an impact," he said. "I don't see why
we can't go below $1,300 before the end of the year."
    Central bankers from around the world will gather from Aug.
25 for an annual meeting in the mountains of Jackson Hole,
Wyoming, with Chair Janet Yellen due to speak the following
    The dollar rose against the yen and euro on Monday as
traders reassessed expectations for Fed action on rates after
policymakers' comments last week. 
    "The firm U.S. dollar, rising bond yields and significantly
higher rate hike expectations in the U.S. are apparently
weighing on prices," Commerzbank said in a note. "According to
the Fed Fund Futures, the probability of a U.S. Federal Reserve
rate hike this year is now at over 60 percent again."
    Speculators again cut their bullish positions in COMEX gold
contracts in the week to Aug. 16. 
    The world's largest gold-backed exchange-traded fund, New
York-listed SPDR Gold Shares, reported an outflow of 4.5
tonnes last week, adding to the near 20-tonne drop in its
holdings the previous week. 
    Silver hit a seven-week low of $18.77 an ounce and
was later down 1.7 percent at $18.95.
    Platinum was down 0.4 percent at $1,105.60, while
palladium was 0.3 percent lower at $706.

 (Additional reporting by Nallur Sethuraman in Bengaluru;
Editing by Susan Thomas and Adrian Croft)
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