Gold prices pulled back on Tuesday as investors contemplated the likelihood that the Federal Reserve will raise interest rates in the coming months.
Gold for August delivery was recently down 0.3% at $1,243.50 a troy ounce on the Comex division of the New York Mercantile Exchange, breaking a two-day winning streak.
On Monday, Fed Chairwoman Janet Yellen said the central bank should gradually raise short-term rates but didn’t provide a timeline for projected rate increases. The speech followed a dismal May jobs report on Friday, which boosted gold prices and derailed expectations that the Fed may raise rates at the June policy meeting.
As the market has had time to digest the jobs data from Friday, Frank McGhee, head precious metals dealer at Alliance Financial, said traders have shifted their attention to the possibility of a rate increase in July.
“You’ve got a lot of people that were sucked in [on Friday], and now that they start thinking about it, June was never a viable raise date, but July is there,” Mr. McGhee said.
Higher rates put pressure on gold prices, since the metal pays its holders nothing and struggles to compete with yield-bearing assets such as Treasurys when borrowing costs rise.
While monetary policy has been a large driver of gold prices this year, Jessica Fung, a metals strategist at BMO Capital Markets, said slowing global growth should help push gold higher.
“We believe focusing on the Fed alone is simplistic and only drives very near-term sentiment and volatility,” Ms. Fung wrote in a Tuesday note. “The potential impact of sluggish global growth on the U.S. economy should not be ignored.”
SOURCE: Wall Street Journal
