Gold pummelled on reassessment of Fed rate hike timing

Otmane El Rhazi from The Bullion Desk.

The gold price fell sharply on Thursday as a strong US labour figure strengthened expectations that the Federal Reserve will raise interest rates mid-year.

Gold for March delivery on the Comex division of the New York Mercantile Exchange closed down $31.30, or 2.4 percent, at $1,255.90 per ounce.

As for the other precious metals, Comex silver was hammered, ending down $1.31, or 7.3 percent, at $16.773 per ounce. Trade ranged from $16.740 to $18.050.

Platinum futures for April delivery on the Nymex ended down $41.20 at $1,217.30 per ounce, while the most-actively traded palladium contract closed at $771.60 per ounce, up $24.70.

“Precious metals were lower with gold and silver falling to two-week lows as signs of a robust US labour market and upbeat euro area economic data cut safe-haven demand,” ANZ Research said in a note.

US initial jobless claims fell by 43,000 to a seasonally adjusted 265,000 in the week ended January 24, which was the lowest level since April 2000. This easily beat the forecast for 265,000 claims and spurred an equities rally.

The Dow Jones industrial average and S&P 500 were last up 1.31 percent and 0.98 percent respectively.

Meanwhile, the Federal Open Market Committee (FOMC) said on Wednesday that it can be “patient in beginning to normalise the stance of monetary policy”, indicating that the prospect of a interest-rate increase is still a couple months away. The current market consensus is that the first rise will happen sometime in the second half of this year.

But the committee did make some small tweaks to its statement. Not only did it remove “considerable time” from its language on tightening but it also noted that economic activity has expanded “at a solid pace”, which is an upgrade from “moderate pace” in its previous statement and gave the announcement a hawkish slant.

“Tightening in the United States and an associated rebound in the US dollar would put significant pressure on gold as both a hedge against inflation and a safe-haven asset,” Société Générale analyst Robin Bhar said.

“Moreover, against the backdrop of diverging policy moves by the world’s major central bank, interest rate differentials could also be supportive for the dollar, putting further pressure on dollar-denominated gold prices,” he added.

The post Gold pummelled on reassessment of Fed rate hike timing appeared first on The Bullion Desk.