Gold price hits four-week low on expected US rates hike

London (Mar 8)  Yesterday, the metal fell to $1,213 an ounce, its lowest level since 3 February. Despite having trimmed its losses overnight, it was sliding again this morning and stood at a dollar below yesterday's four-week low.

Helping trigger this downward trend have been comments from Federal Reserve officials pointing to a rate rise at their next policy meeting next week.

In particular, on Friday, Fed chairwoman Janet Yellen said explicitly that "a further adjustment of the federal funds rate would likely be appropriate" if the economic data remains strong.

Investing.com says "at the current level of market odds, a March hike is now locked in".

Reuters adds that "early last week, financial markets saw just a 30 per cent chance of the Fed raising interest rates in March; but by Friday… traders saw an 80 per cent chance".

Gold tends to respond badly to rates increases, as this boosts the value of income-bearing assets at the expense of non-yielding alternatives such as commodities.

Rising rates also typically coincide with a rising dollar, against which gold is often held as a hedge. In addition, they indicate rising confidence in the economy, which boosts risk assets and undermines gold's appeal as a "safe haven".

However, while gold is down on recent levels, trading remains well above its position late last year and ahead of where analysts expected it to be.

Societe Generale, for example, predicted an average gold price of $1,175 an ounce this year, while the World Bank believes it will average around $1,150.

Investing.com says: "Investors should not forget that real interest rates are what really matters for gold prices – a small rate hike may not be enough to combat inflation and raise real interest rates.

Source: TheWeek