Gold prices hit six-week low on rate hike expectations

goldNEW YORK: Gold prices fell to the lowest in more than six weeks on Thursday, on expectations of further US interest rate increases this year and receding political uncertainty in Europe.

Spot gold was down 0.8% at US$1,227.94 an ounce by 3:02 p.m. EDT (1902 GMT) after touching US$1,225.20, the lowest since March 17, and extending losses below the 50- and 200-day moving averages. Support was seen around US$1,221, the 100-day moving average.

US gold futures GCcv1 settled down 1.6% at US$1,228.60.

“The recent modest rise in US real yields and thereby also in the US dollar has resulted in downward pressure on gold prices. What is more, optimism about an EU-friendly election outcome in France has calmed investor’s nerves,” said ABN Amro analyst Georgette Boele.

“As a result, investment assets that have safe haven characteristics, such as the yen and gold, have been sold off.”

Expectations that centrist Emmanuel Macron will win the French presidential election on Sunday were reinforced in a TV debate with the far-right’s Marine Le Pen.

The dollar index  initially strengthened after the US Federal Reserve played down any threats to this year’s planned rate increases, supporting forecasts of another move in June.

Higher US interest rates are a negative for gold, which earns nothing and costs money to insure and store.

Bullion held its losses as the US dollar turned lower.

The focus is now shifting to Friday’s US non-farm payrolls report for April, which could reinforce expectations of higher US interest rates in June.

“In the very near term we continue to expect that gold will trade moderately lower – our three-month target is US$1,200/oz, as a number of bearish catalysts have yet to fully play out,” Goldman Sachs analysts said in a note.

Goldman said near-term downside risks for gold included more US rate increases than the market is expecting and the Fed starting to shrink its balance sheet on the back of possible US tax cuts and solid US and global economic growth.

Central bank gold demand hit its lowest in nearly six years in the first quarter as Chinese buying dried up, the World Gold Council said in a report.

Silver was down 0.6% at US$16.295, having hit a four-month low of US$16.17. It has fallen around 13% since reaching a five-month high of US$18.65 in mid-April.

Platinum gained 1% to US$901.20, after touching US$889.10, its lowest since December.

Palladium rose by 0.4% to US$802.10.