Spot gold fell as much as 1.5 per cent to a session low of $US1,337.37 per ounce, paring losses by 2.57 pm EDT (0457 Saturday AEST) when it was down 0.7 per cent at $US1,342.62.
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Gold fell on Monday to its lowest in almost two weeks as the dollar strengthened after comments from US Federal Reserve officials increased bets on a US rate hike this year.
Prices fell on Monday after weekend comments by the Fed’s No.2 policymaker, Stanley Fischer, saying that the central bank is close to hitting targets for full employment and 2 per cent inflation, raising the prospect of a United States rate increase.
“People are anxious that a September rate hike is not completely ruled out as a possibility”.
“The exchange-traded funds have not risen significantly and that should be a short-term bearish signal for gold”, Mr To said, adding that gold might soon test the level of US$1,280 to US$1,300.
Spot gold is expected to drop deeply to $1,320 per ounce, according to Reuters technical analyst Wang Tao.
On Thursday, August 18, William Dudley, president of the Federal Reserve Bank of NY, commented in support of a gradual increase in interest rates-preferably sooner than later.
Spot silver hit a seven-week low of $18.79 an ounce and was down over 2 per cent. Before the release of the Fed’s July minutes, Dudley commented on Tuesday, August 16, that the Fed could increase interest rates as soon as September.
“We likely will see more weakness in the precious group at least until Fed Chair Yellen provides a little more clarity about the future course of interest rates on Friday”, INTL FCStone analyst Edward Meir said in a note.
Those that wanted an increase cited “actual and expected strengthening in economic activity and their expectations for inflation to gradually move toward the 2 percent objective”.
Gold is sensitive to higher rates which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar in which it is priced.
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The dollar fell 0.13 per cent against a basket of major currencies, helping to underpin gold. Platinum edged 0.76% higher to $1,107.30, while palladium gained 0.59% to $694.15.
