Gold prices fell on Wednesday, sinking to their lowest level in
nearly two months, after Federal Reserve Chairwoman Janet Yellen
indicated the U.S. central bank could raise rates at its December
meeting.
Ms. Yellen, in testimony of the House Financial Services
Committee, said a December rate increase is a “live possibility” so
long as economic growth picks up steam, the labor market continues to
improve and inflation nudges closer to the Fed’s 2% target.
“Everything
she said leads to her assessment of a December rate hike being on the
table. and that’s what spooked the gold market,” said George Gero, a
senior vice president with RBC Capital Markets Global Futures in New
York.
Federal Reserve Chairwoman Janet Yellen
Photo:
jonathan ernst/Reuters
The most actively traded contract, for December delivery, settled
down $7.90, or 0.7%, at $1,106.20 a troy ounce on the Comex division of
the New York Mercantile Exchange. This was the lowest close since Sep.
15.
Gold prices have lost 6.8% since mid-October as investors
recalibrated their expectations of U.S. monetary policy in response to
hawkish signals from the Fed. The U.S. central bank surprised many
investors by reiterating that a potential shift to higher rates remains
on this year’s agenda despite the recent raft of disappointing economic
readings. Gold is expected to struggle once rates climb as it doesn’t
pay interest and costs money to hold.
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Fed
funds futures, used by investors to place bets on central-bank policy,
pegged the likelihood of a December rate increase at 60% following Ms.
Yellen’s remarks, up from 52% earlier on Wednesday morning, data from CME Group
show.
“A 60% chance of a December hike has been a large headwind for gold,” Mr. Gero said.
Gold
traders now turn their attention to the U.S. employment report, due out
on Friday, for fresh insights into U.S. labor market health. The report
is closely followed by investors because it is a key input into the
Fed’s monetary policy decisions.
“Gold is on its tiptoes right now, any indication of a rate increase or a (delay) would send waves through this market,” said Bob Haberkorn, a senior commodities broker with RJO Futures in Chicago.
Still,
if the jobs report were to fall short of expectations, “it would put
weight in the corner that there’s no Fed rate increase coming this
year,” Mr. Haberkorn said.
Write to Tatyana Shumsky at tatyana.shumsky@wsj.com
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