Gold price plunges to yearly low, as Yellen hints of likely 2015 rate hike

San Francisco (July 15)  Gold futures plummeted to its lowest level of 2015 amid a stronger dollar, as Federal Reserve chair Janet Yellen sent strong indications that economic conditions will justify an interest rate hike by the Fed at some point this year.

On the Comex division of the New York Mercantile Exchange, gold for August delivery plunged to $1,142.40 a troy ounce, its lowest level since early-December, before slightly rebounding in U.S. afternoon trading to 1,147.20, down 6.30 or 0.55% on the session. Gold futures fell as low as $1,130.40 last November before rallying to around $1,185 at the close of trading in 2014.

Gold likely gained support at 1,142.30 the low from Mar. 17 and was met with resistance at 1,170, the high from July 7. Since peaking above $1,200 an ounce in mid-June, gold futures are down more than 4.75%.

In prepared remarks before Congress during her semi-annual Humphrey-Hawkins testimony, Yellen reiterated that the Federal Open Market Committee will likely raise its benchmark Federal Funds Rate later this year if it continues to see improvements in the U.S economy and labor markets. The benchmark rate has remained at its current level of between zero and 0.25% since the end of the financial crisis. Meanwhile, more than eight years have passed since the Fed last instituted a rate hike.

"What matters for financial conditions and the broader economy is the entire expected path of interest rates, not any particular move, including the initial increase, in the federal funds rate," Yellen said. "Indeed, the stance of monetary policy will likely remain highly accommodative for quite some time after the first increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment and 2 percent inflation."

Gold, which is not attached to interest rates or dividends, struggles to compete with high-yield bearing assets in periods of rising interest rates.

Following Yellen's comments the FOMC is widely expected to raise the Federal Funds Rate later this year during its September or December meeting. An earlier rate increase could correlate with a more gradual long-term rate path, while a delayed rate hike might force the Fed to accelerate the rate path, Yellen added.

"The entire path of rate increases does matter," Yellen said.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six major other currencies, surged more than 0.6% to a weekly high of 97.44 before falling slightly back to 97.37.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Elsewhere, Nadia Valavani, Greece's deputy finance minister, resigned on Wednesday ahead of a critical vote from Parliament on a three-year bailout from its euro zone creditors. Greece prime minister Alexis Tsipras is expected to receive the votes necessary to pass four measures that will trigger a vote on the bailout program among six other national parliaments in Europe over the next week.

With a €3.5 billion obligation due to the European Central Bank on July 20, Greece could default on its sovereign debt if the measures are not passed on Wednesday evening.

Silver for September delivery dipped 0.248 or 1.62% to 15.067 an ounce.

Copper for September delivery fell 0.014 or 0.056% to 2.52 a pound.