Gold Falls on Interest-Rate Jitters as FOMC Meets
Washington (July 29) Gold prices fell Tuesday, as concerns about a quicker-than-expected return to higher interest rates in the U.S. overshadowed escalating political tensions around the world, causing investors to sell the precious metal.
Gold for August delivery, the most actively traded contract, settled down $5, or 0.4%, at $1,298.30 a troy ounce on the Comex division of the New York Mercantile Exchange. Prices had risen to a one-week high of $1,312.10 an ounce earlier in the session.
Consumer confidence in the U.S. hit its highest level since before the recession in July, data from the Conference Board showed Tuesday, bolstering the view that the recovery is gaining traction. The better-than-expected numbers, coming ahead of Wednesday's statement from the Federal Reserve, put gold bulls on the defensive.
Fed Chairwoman Janet Yellen said earlier this month that interest rates would climb faster than the market expected if U.S. data continue to improve. Gold, which costs money to hold, struggles to compete with assets that offer yield when interest rates rise.
Also hitting gold prices was a stronger dollar, which stood at its highest level in eight months against the euro. A rising greenback hurts gold, which some investors use as a hedge against a weaker U.S. currency.
"Nobody wants to be long gold right now when you have a Fed that most people believe is inclined to tighten sooner rather than later," said Frank Lesh, a broker at FuturePath Trading.
Earlier in the day, gold prices rose on spiraling geopolitical tensions, as fighting raged in Gaza despite repeated attempts by mediators to negotiate a cease-fire. In Europe, the U.S. and the European Union were expected to hit Russia with broader, sector-wide sanctions. The U.S. has accused Russia of providing rebels in Ukraine's eastern regions with surface-to-air missiles that were used to shoot down a Malaysian airliner on July 17.
Some investors use gold as a hedge in times of political and economic uncertainty in the belief it will hold its value better than other assets.