Gold prices fell on Wednesday, sinking to their lowest level in nearly two months, after Federal Reserve Chairwoman Janet Yellen indicated the U.S. central bank could raise rates at its December meeting.
Ms. Yellen, in testimony of the House Financial Services Committee, said a December rate increase is a “live possibility” so long as economic growth picks up steam, the labor market continues to improve and inflation nudges closer to the Fed’s 2% target.
“Everything she said leads to her assessment of a December rate hike being on the table. and that’s what spooked the gold market,” said George Gero, a senior vice president with RBC Capital Markets Global Futures in New York.
The most actively traded contract, for December delivery, settled down $7.90, or 0.7%, at $1,106.20 a troy ounce on the Comex division of the New York Mercantile Exchange. This was the lowest close since Sep. 15.
Gold prices have lost 6.8% since mid-October as investors recalibrated their expectations of U.S. monetary policy in response to hawkish signals from the Fed. The U.S. central bank surprised many investors by reiterating that a potential shift to higher rates remains on this year’s agenda despite the recent raft of disappointing economic readings. Gold is expected to struggle once rates climb as it doesn’t pay interest and costs money to hold.
Fed funds futures, used by investors to place bets on central-bank policy, pegged the likelihood of a December rate increase at 60% following Ms. Yellen’s remarks, up from 52% earlier on Wednesday morning, data from CME Group show.
“A 60% chance of a December hike has been a large headwind for gold,” Mr. Gero said.
Gold traders now turn their attention to the U.S. employment report, due out on Friday, for fresh insights into U.S. labor market health. The report is closely followed by investors because it is a key input into the Fed’s monetary policy decisions.
“Gold is on its tiptoes right now, any indication of a rate increase or a (delay) would send waves through this market,” said Bob Haberkorn, a senior commodities broker with RJO Futures in Chicago.
Still, if the jobs report were to fall short of expectations, “it would put weight in the corner that there’s no Fed rate increase coming this year,” Mr. Haberkorn said.
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