FOMC's Hawkish Stance Weighs on Gold, Silver Prices

New York (Feb 19)  Gold and silver futures extended losses in aftermarket trading on Wednesday after meeting minutes showed Federal Reserve officials discussed the possibility of raising interest rates sooner than expected.

The Federal Open Market Committee in January started to debate when to raise interest rates, with a few participants saying it might be appropriate to increase the federal funds rate "relatively soon," according to minutes from the FOMC Jan. 28-29 meeting.

"Talk about rate hikes is certainly going to offset some of the euphoria we've seen in gold and silver in recent weeks," said Dave Meger, director of metals trading with Vision Financial Markets, a Chicago-based futures brokerage.

Higher interest rates would bolster the dollar and pressure demand for precious metals, which are traded in dollars and would become more expensive for foreign investors.

Gold futures had been retreating ahead of the release of the FOMC minutes. The most actively traded contract, gold for April delivery, had settled down 0.3% at $1,320.40 a troy ounce on the Comex division of the New York Mercantile Exchange. Comex floor trading closed at 1.30 p.m. Eastern time, half an hour before the FOMC minutes were released.

Gold prices extended their losses in electronic trading in response to the minutes, falling to an intraday low $1,314 a troy ounce.

Silver, which settled down 0.2% at $21.850 an ounce, was recently trading down 1% at $21.685 an ounce.

Both gold and silver benefited from the Fed's efforts to spur U.S. economic growth through successive rounds of liquidity infusions. Many investors worried that the Fed's unconventional stimulus efforts could raise inflation or weaken the dollar and sought the precious metals as a hedge.

But the prospect of tighter monetary policy cast a dark shadow over gold in 2013, with the metal plunging 28% and ending a 12-year bull run. That decision, announced in December, pushed gold to a three-year low.

Source Online WSJ