GOLD PRICES tracked lower to $1272 per ounce on Wednesday morning in London, while markets were waiting for the Federal Open Market Committee (FOMC) meeting minutes to be released later today, writes Steffen Grosshauser at BullionVault. Investors were hoping for further information about the timing of the next interest rates hike.
Strong U.S. economic data and comments by the Presidents of the Atlanta and San Francisco Feds that at least two increases may be warranted this year buoyed by prospects of the central bank increasing rates rather sooner than later. A third Fed official said that he would push for an interest hike as early as June when officials meet next.
The U.S. consumer price index (CPI) accelerated by 0.4% in April and showed its biggest increase in more than three years, according to data published by the Department of Labor on Tuesday. Petrol prices and rents also rose while new housing starts and industrial production recovered by 6.6% and 0.7% respectively, which are seen by several market observers as indicators for a steady inflation build-up.
Gold dropped around 0.5% from $1280 following this news. The yellow metal has rallied around 20% so far this year, as lower rates also decrease the opportunity costs of non-interest-yielding gold.
“The prices have slipped slightly today… that is partly due to speculation or increased bets that the Fed will be listing higher rates this year,” said Vyanne Lai, analyst at National Australia Bank.
“Expectations appear to be that minutes will signal that a summer hike is on the cards,” agrees currency strategist Stuart Bennett at the Spanish banking group Santander.
The dollar index, which measures the dollar against a basket of six major currencies, climbed 0.3% to 94.83.
Brent crude oil was slightly up to $49.35 per barrel with futures trading at a 6-month high, as new wildfire warnings were threatening Canada’s oil supplies.
Silver prices tracked gold and expanded its fall by dropping around 1.3% to $17.06 per ounce.
While gold sank after the remarks by the Fed officials on Tuesday, the risk of a U.K.’s Brexit vote may lift prices again, according to the Denmark’s Saxo Bank.
“It’s not just one risk right now,” said their Head of Commodity Strategy Ole Hansen, who predicts gold jumping to $1400 per ounce again this year. “We have got several risks, so when you start adding them up, it could be that additional risks will sway some investors to add exposure to gold or maybe revisit gold.”
In the meantime, the world’s largest gold-backed exchange traded fund SPDR Gold Trust (NYSE Arca: GLD) increased by 0.56% to 855.89 tonnes on Tuesday – the highest level since November 2013.