Gold Ends Lower as Investors Anticipate Higher U.S. Interest Rates

New York (Aug 4)  Gold prices slipped Monday, as fears of a sooner-than-expected increase in U.S. interest rates overshadowed continued violence in Ukraine and Israel.

Gold for December delivery, the most actively traded contract, settled down $5.90, or 0.5%, at $1,288.90 a troy ounce.

A recent spate of strong U.S. economic data has revived investor concerns that the Federal Reserve may move to tighten monetary policy sooner than previously believed. A slight shortfall in July employment numbers was balanced by upward revisions for May and June, Labor Department data showed Friday, indicating that the U.S. economy continues on a recovery path. U.S. manufacturing, meanwhile, grew at its fastest pace in more than three years last month, and second-quarter economic growth came in above expectations, further bolstering the case for the Fed to increase interest rates. Higher rates would hurt gold, which struggles to compete with investments that offer yield.

"Good economic data over the next few months are likely to put the subject of interest-rate hikes back on the Fed's agenda, which should reduce the relative attractiveness of gold and silver and preclude any sharp rises in price," Commerzbank analysts said in a note to investors.

Fed Chairwoman Janet Yellen said last month that interest rates would climb faster than the market expected if U.S. data continue to improve.

Gold prices retreated 3% in July as investors shifted focus from simmering conflicts in Eastern Europe and the Middle East to the possibility of tighter monetary policy in the U.S. Some investors buy the metal as a hedge against political and financial turmoil, believing it will hold its value better than other assets.

Source: WSJ