SINGAPORE: Gold looks very different from the beginning of May. Along with platinum, palladium and silver, it is heading for the biggest monthly loss since November as investors anticipate higher borrowing costs in the US
Bullion for immediate delivery fell as much as 0.7 per cent to $1,211.68 an ounce, the lowest price since April 1, and was at $1,219.34 at 10.46am in London, according to Bloomberg generic pricing. It’s down 2.5 per cent this week, set for a fourth weekly drop that’s the longest run since November.
Gold has pared this year’s rally after retreating more than 5 per cent in May as investors raised bets on the Federal Reserve increasing interest rates from as early as next month, causing the dollar to rally. Higher rates curb bullion’s appeal against interest-bearing assets. Fed Chair Janet Yellen is due to speak on Friday at Harvard University after a number of regional Fed presidents have indicated their willingness to tighten policy.
“At the start of this month, markets were excessively dovish, pricing almost no probability of a US rate hike in June,” said Tom Kendall, the head of precious metals strategy at ICBC Standard Bank Plc in London. “A run of better US economic data plus the minutes of April’s FOMC meeting have seen US forward rates move up, the dollar rally and gold has naturally sold off.”
There are still voices of caution. Fed Governor Jerome Powell on Thursday laid out a clear argument for raising rates while stressing that global risks meant there’s no reason to hurry. Jeffrey Gundlach, chief executive of DoubleLine Capital LP in Los Angeles, said he expects a dovish speech from Yellen and predicts the Fed will refrain from raising in June unless traders in the futures market assign a probability of at least 50 per cent to such a move.
Fed officials will gather in Washington June 14-15 to decide whether to increase rates for the first time since December. Odds on the Fed increasing rates next month have pulled back to 28 per cent, the same level as a week ago, from 34 per cent on May 25, while the probability of a move in July remains above 50 per cent, according to Fed funds futures.