August 19, 2016
Gold Drops as Fed’s Williams Says He’s for Increasing Rates Soon
(Bloomberg) - Gold dropped, snapping a four-day winning run, as the dollar rebounded and a Federal Reserve policy maker said the U.S. economy is strong enough to warrant an increase in interest rates soon, warning that waiting too long risks high inflation or asset bubbles.
Bullion for immediate delivery fell as much as 0.5 percent to $1,345.80 an ounce and traded at $1,347.71 at 11:29 a.m. in Singapore, according to Bloomberg generic pricing, as a gauge of the greenback climbed 0.4 percent. The metal remains 0.9 percent higher this week.
While the Fed’s hesitation in raising rates this year has helped boost gold 27 percent, recent comments have left open the possibility of a move before year-end. Fed Bank of San Francisco President John Williams said on Thursday it makes sense to get back to a pace of gradual increases, preferably sooner rather than later.
Investors will look for further clues as Chair Janet Yellen speaks Aug. 26 at an annual gathering in Jackson Hole, Wyoming.
“With the market looking forward to Jackson Hole, we wouldn’t be surprised to see the metal to remain range-bound,” said Jordan Eliseo, Sydney-based chief economist at trader Australian Bullion Co. Whilst gold has no lack of supportive factors, a rally in risk assets, greater chances of another hike from the Fed, a drop in net longs in four of the last five weeks, and minor outflows from gold-backed funds have limited the upside, according to Eliseo.
The net-long position in gold futures and options fell 4.3 percent to 255,773 contracts in the week ended Aug. 9, according to Commodity Futures Trading Commission data released three days later. Exchange-traded fund holdings fell for a second day as of Thursday, data compiled by Bloomberg show.
While the probability of a hike ticked up earlier this week after New York Fed President William Dudley flagged the possibility of tightening as soon as next month, minutes of the central bank’s last meeting released Wednesday struck a more dovish tone, pushing odds back below 50 percent. Societe Generale SA isn’t expecting any increases in U.S. borrowing costs this year.
“The delay in the Fed rate hike profile has been a significant factor in our positive outlook for gold in the near term, as much of the weakness throughout 2014 and 2015 has been a function of policy normalization and a stronger dollar,” said Mark Keenan, head of commodities research for Asia at SocGen. Prices may rise to $1,400, he said.
In China, bullion of 99.99 percent purity fell 0.2 percent to 288.40 yuan a gram ($1,350.05 an ounce) on the Shanghai Gold Exchange.
On the Shanghai Futures Exchange, gold for December delivery lost 0.1 percent to 288.95 yuan a gram, while silver dropped 0.5 percent to 4,360 yuan a kilogram.
Silver declined 0.6 percent, platinum retreated 0.8 percent and palladium fell 0.7 percent.