Rising Short-Term Rate-Hike Expectations Pressuring Gold Price
New York (Aug 17) The gold is being pressured Wednesday morning as short-term interest-rate-hike expectations rise following recent comments from New York Federal Reserve President William Dudley.
In an interview on Fox Business Network, Dudley said that it was possible that interest rates could move higher at the Federal Reserve monetary policy meeting in September.
“We are looking for growth in the second half of the year that will be stronger than the first half,” he said during the interview. “I think the labor market is going to continue to tighten, and in that environment I think we are getting closer to the day where we are going to have to snug up interest rates a little bit.”
Gold has struggled since Dudley’s comments. December gold futures last traded at $1,349.70 an ounce, down 0.53% on the day.
Since making the comments, interest-rate expectations have started to rise. CME 30-day Fed fund futures are currently pricing in an 18% chance of an interest-rate hike in September, up from 15% Tuesday. At the same time, markets see an 18% chance of a move in November, up from 15% seen in the previous day.
Interestingly, expectations for a move later in the year and early 2017 have fallen slightly. Markets are pricing in a 50% chance of a move in December, down from 52% probability seen Tuesday.
Interest-rate expectations for February have fallen to 51%, down from the previous level of 54%.
Later today, markets will hear from St. Louis Fed President James Bullard, who is speaking about the economy at an event in his hometown.
Economists are also waiting for the release of the minutes from the July Fed monetary policy meeting. The U.S. central bank left interest rates unchanged in July, despite striking a more optimistic tone, noting, “Near-term risks to the economic outlook have diminished.”
A slightly hawkish tone in the minutes could continue to weaken gold prices as it would support the Fed raising interest rates sooner than expected. However, a slightly dovish tone would help gold prices as the next rate hike is pushed further down the calendar.