Gold price hits 4-week low as U.S. rate hike outlook weighs

San Francisco (May 24)  Gold fell to a four-week low on Tuesday as hawkish comments from Federal Reserve officials in the previous session sent the dollar to a two-month high against a currency basket.

The prospect of an early rate hike, as indicated by Fed meeting minutes released last week, and a strengthening dollar have pushed gold down more than 4 percent so far in May, putting it on track for its biggest monthly decline since November.

Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding the non-yielding metal, while boosting the dollar, in which it is priced.

Spot gold was down 1.56 percent at $1,228.96 an ounce. U.S. gold futures for June delivery were down $22.10 an ounce at $1,229.40.

"What we're seeing is a lot of things that would mean higher rates coming together," Oxford Economics analyst Daniel Smith said. "The U.S. economy is actually doing reasonably well... and with higher oil prices and a tightening U.S. labour market, everything's starting to come together to (suggest) it would be sooner rather than later."

Senior Fed officials on Monday said that rates being kept too low for too long could cause financial instability, and that the U.S. central bank would continue with rate increases next year.

More Fed policymakers are scheduled to speak this week and are expected to back the case for a rate hike within months. Fed Chair Janet Yellen will be at a panel event hosted by Harvard University on Friday.

"We had more hawkish noises yesterday, with a trio of Fed speakers lining up to say that June or July are live meetings for considering a rate increase," Societe Generale analyst Robin Bhar said.

"The dollar's in the ascendancy... and gold is coming under pressure. We've lost sight of the $1,250 level, which was holding things up pretty well. We'll be looking to hold here -- if not, we could get back to the low $1,200s."

Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, rose 0.38 percent to 872.52 tonnes on Monday.

Source: CNBC