On Monday, U.S. stocks closed near intraday highs (http://www.marketwatch.com/story/dow-futures-slump-more-than-100-points-as-rate-hike-fears-linger-2016-09-12) after comments from Federal Reserve Gov. Lael Brainard calmed market fears (http://blogs.marketwatch.com/capitolreport/2016/09/12/live-video-and-blog-of-brainard-speech-and-qa/) that the central bank will raise interest rates soon.
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“We are slightly bearish on gold prices before the Fed meeting”.
Regardless, many experts believe the Fed’s willingness to move this month has been underestimated by other experts and investors, the FT reported. “Now they’re in a quiet period so we don’t know what they’re thinking”. The yield on the 30-year Treasury bond also jumped.
But the bounce evaporated as Wall Street opened lower and tumbling crude prices on the back of worries over a supply glut sent the sector index down more than 2.8 percent, making it the worst performer in Europe. Intersil climbed $1.99, or 10.1 percent, to $21.75.
A stronger greenback makes dollar-denominated gold more expensive for the holders of other currencies.
Gold has fallen for the fifth straight day, weighed down by a firmer U.S. dollar and a jump in Treasury yields as well as uncertainty about whether the USA central bank will raise interest rates next week.
“Today’s new normal counsels prudence in the removal of policy accommodation”, Brainard, one of six permanent voters on the Fed’s rate-setting committee, told the Chicago Council on Global Affairs.
On Tuesday, Brainard said the Fed should be cautious in tightening policy to avoid getting trapped in a low-growth, low-inflation environment.
Gold is sensitive to moves in USA rates. USA markets plunged sharply lower as the positive reaction to dovish comments from a noted Fed official on Monday faded and as investors faced the reality of a lower crude oil prices due to a forecast for lower demand.
“I think circumstances call for a lively discussion next week”, said Atlanta Fed President Dennis Lockhart, who will not be a voter at next week’s policy review but will participate in discussions.
The U.S. dollar bought 102.72 Japanese yen, higher than 101.84 yen of the previous session. Investors still saw just higher than 50/50 odds for a December hike. However, most Fed board members who have spoken recently think that there will be a United States interest rate hike in December. The Australian dollar dipped to 0.7453 dollar from 0.7561 dollar.
Republican Presidential candidate Donald Trump accused the Fed on Monday of keeping interest rates low because of political pressure from the Obama administration. The comments came after Boston Fed President Eric Rosengren said on Friday that low interest rates are increasing the chance of overheating the US economy.
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Inflation has been below the Fed’s 2 percent inflation target for the last four years. The BOJ is scheduled to meet on the same dates as the U.S. Fed, on September 20-21.
