Gold price treads water as potential Fed rate hike looms

June 13, 2018

New York (June 13)  Gold prices drifted lower early Wednesday in New York as investors braced for a monetary policy decision from the Federal Reserve later in the session that could ripple through markets.

August gold GCQ8, -0.14%  fell $1.20, or 0.1%, to $1,298.20 an ounce, after settling below a psychologically significant level at $1,300 on Tuesday on the back of a strengthening dollar.

The ICE U.S. Dollar Index DXY, +0.03% a measure of the dollar against a half-dozen major currencies, was flat on Wednesday but up 0.3% thus far this week. A stronger dollar can weigh on demand for assets priced in the currency, making them more expensive to buyers using other monetary units.

A statement from Fed is due at 2 p.m. Eastern Time, a half-hour after gold is set to close on Comex. A news conference with Fed Chairman Jerome Powell is slated for 2:30 p.m.

Check out: 5 challenging questions Fed chief Powell may encounter

According to the Fed-funds futures, market participants are almost certain that policy makers will increase interest rates by a quarter of a percentage point, with the implied probability for such an action currently standing at around 95%. That would mark the second rate hike this year and the seventh increase since the start of the tightening cycle in December of 2015.

Rising rates can diminish the appetite for assets like gold because the commodity doesn’t offer a yield, compared against the perceived safety of other assets like government bonds.

“A rate hike by itself is unlikely to trigger market volatility. If, indeed, the committee decides to hike, then all eyes are likely to turn to the accompanying statement, the updated economic projections, especially the new ‘dot plot’ [of interest-rate expectations], as well as Powell’s press conference,” said Charalambos Pissouros, senior market analyst, with JFD Brokers.

“The main message we got from the minutes of the latest Fed meeting is that officials are on track for raising interest rates at this meeting, but they may not be in a rush to increase the pace thereafter, even if inflation overshoots their 2% inflation goal over the next few months,” he said.

In other Comex-traded metals, July silver SIN8, +0.14%  added 0.1% to $16.915 an ounce. July copper HGN8, -0.15%  declined by 0.1% to $3.247 a pound


Silver Phoenix Twitter                 Silver Phoenix on Facebook