Gold retreats on bets for hawkish Fed strategy

Gold prices extended their slide on Wednesday to hit their lowest in 3-1/2 months on bets for interest rates remaining higher for longer, while traders positioned for a speech by Federal Reserve Chair Jerome Powell.

Spot gold fell 0.4% to $1,905.75 per ounce by 9:23 a.m. EDT (1323 GMT), hitting its lowest since mid-March. U.S. gold futures shed 0.5% to $1,915.00.

“Although the market is pricing in a decent chance that the Fed is going to hike in July, the more relevant factor for gold is that the market has been simultaneously pricing out the number of cuts that we could expect over the next year,” said Daniel Ghali, commodity strategist at TD Securities.

Markets were pricing in a 74% chance of a rate hike at the Fed’s next meeting in July, seeing little odds of any easing in monetary policy by the end of this year, according to the CME FedWatch tool.

The dollar index firmed 0.4%, making gold less attractive for overseas buyers.

“Good U.S. economic data remains a headwind for the yellow metal, as it likely keeps Fed officials reiterating a hawkish tone,” UBS analyst Giovanni Staunovo said.
Sales of new U.S. single-family homes surged to the highest in nearly 1-1/2 years in May, while U.S. consumer confidence also jumped in June. Investors’ focus has shifted to Powell’s speech at a policy panel at the European Central Bank Forum in Portugal.

“We still expect at some point the aggressive monetary policy tightening to weaken U.S. economic data and result in a change of tone by the Fed,” Staunovo added.

High interest rates discourage traders from investing in non-yielding gold.

Silver fell 1% to $22.65 per ounce, platinum shed 1.4% to a four-month low at $911.74, and palladium plunged 5.5% to $1,225.19, its lowest in 4-1/2 years.