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Gold edges lower as dollar gain on Fed interest rate expectations

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Investing.com -

Investing.com - Expectations that the Federal Reserve will hike interest rates sooner rather than later in 2015 boosted the dollar on Tuesday and sent gold prices falling.

Gold and the dollar tend to trade inversely with one another.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at 1,250.20 a troy ounce during U.S. trading, down 0.33%, up from a session low of $1,248.30 and off a high of $1,258.90.

The December contract settled down 1.03% at $1,254.30 on Monday.

Futures were likely to find support at $1,241.20 a troy ounce, the low from June 5, and resistance at $1,279.20, last Thursday's high.

The dollar saw broad support on hawkish language in a Federal Reserve Bank of San Francisco report, which hinted that markets may be underestimating the pace at which rates may rise, evidenced by low volatility.

"Recently, subdued levels of volatility in financial markets have received some attention. For example, Federal Reserve Chair Janet Yellen (2014) noted that 'indicators of expected volatility in some asset markets have fallen to low levels, suggesting that some investors may underappreciate the potential for losses and volatility going forward,''" the report released on Monday read.

"Prices of financial assets, such as stocks and bonds, are sensitive to unexpected changes in interest rates because their present values are determined by discounting future cash flows. Thus, the low volatility in asset markets could, in part, reflect market participants' relative certainty about the future course of interest rates."

By Tuesday, the greenback strengthened on the news, giving gold room to slide.

Gold has seen support on three rounds of Fed asset purchases, rock-bottom interest rates, dovish language and other policies put into play since the 2008 financial crisis, as loose monetary policies tend to weaken the dollar, thus boosting the yellow metal's appeal as a hedge.

Meanwhile, silver for December delivery was down 0.09% at $18.943 a troy ounce, while copper futures for December delivery were down 2.03% at $3.104 a pound.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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