Gold Price Drops on a Stronger Dollar and Fed Remarks
New York (Aug 20) Gold prices slipped on Friday, weighed down by a strengthening dollar after two Federal Reserve officials' comments that increased expectations for an interest rate increase this year.
Gold for December delivery settled down 0.8% at $1,346.20 a troy ounce on the Comex division of the New York Mercantile Exchange.
The WSJ Dollar Index was up 0.5% at 85.61 after New York Fed President William Dudley expressed optimism about the outlook for hiring and growth in the U.S. economy, while San Francisco Fed President John Williams said the central bank should move to raise interest rates "sooner rather than later."
Investors took those comments "to mean that they're on the hawkish side, " said Ira Epstein, a strategist with Linn, adding that the prospect of higher rates lifts the dollar.
Higher rates tend to weigh on gold, since the metal pays its holders nothing and struggles to compete with yield- bearing assets like Treasurys when borrowing costs rise.
The stronger dollar also makes dollar-denominated gold more expensive for holders of other currencies.
Gold has traded in a narrow range in recent sessions that have seen central banks take center stage in the absence of market-moving fundamental news.
Investors will watch Fed Chairwoman Janet Yellen as she speaks at a monetary policy conference in Jackson Hole, Wyo., next Friday.
"There's an unease about next week and Yellen's speech," said Bob Haberkorn, senior market strategist at RJO Futures, adding that investors are looking for clarity after receiving mixed messages from Fed officials this week.