Gold falls ahead of Yellen speech on U.S. monetary policy

by Jonathan Adams

Gold fell on Tuesday, extending losses after its biggest weekly drop since early November, as the dollar firmed ahead of a speech by Federal Reserve chair Janet Yellen which will be keenly followed for clues on U.S. monetary policy.

Yellen will be speaking at the Economic Club of New York.

Gold is highly sensitive to U.S. monetary policy, as rising interest rates lift the opportunity cost of holding non-yielding bullion, while boosting the dollar. The precious metal slid 3 per cent last week after hawkish comments from a series of Fed officials.

Spot gold was down 0.2 per cent at £852.85 an ounce by 0921 GMT, after touching a one-month low on Monday at £845.98 an ounce. U.S. gold futures for April delivery were down £1.40 an ounce at £852.95.

Naeem Aslam, chief market analyst at Ava Trade said, “It is all about the Yellen’s speech today”. He said, “The message we received last week from various different Fed members was that the Fed should not hesitate to raise the rate again, and this could take place as soon as next month.”

Added Aslam, “The odds for such an event are still very low, but if Janet Yellen does shows her hawkish side, the possibility of the April meeting becoming a live one could inflate even further”.

“The next support is at £825.11. A hawkish Yellen and a strong reading for the U.S. non-farm payrolls could easily push the gold price to this level.”

European shares rose and the dollar climbed 0.1 per cent against a basket of currencies on Tuesday as investors looked to Yellen’s speech for clues to the interest rate outlook following weak U.S. data.

Reports on Monday showed U.S. consumer spending in February barely rose and inflation retreated.

According to Mitsubishi analyst Jonathan Butler, “The Fed funds futures market is … still pricing in a September rate hike at the earliest – a shifting of expectations towards an earlier rate hike could see the dollar and Treasury yields move higher and gold under pressure once again, though on balance we believe the Fed will remain cautious”.

Data showed the world’s biggest bullion consumer China’s net gold imports via main conduit Hong Kong rose in February from a 17-month low in the previous month.

Among other precious metals, silver was down 0.6 per cent at £10.58 an ounce, while platinum was up 0.9 per cent at £664.85 an ounce and palladium was down 0.2 per cent at £396.44 an ounce.

This article is for information purposes only.
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