Gold taps its lowest price in more than 5 weeks as U.S. dollar rises

Gold prices fell on Wednesday, touching the lowest intraday level since early January, as the U.S. dollar strengthened following the release of Tuesday’s U.S. consumer price index report.

The CPI data showed inflation falling only slowly, suggesting the Federal Reserve will need to raise borrowing costs further.

Price action
  • Gold futures for April

    fell by $18.20, or 1%, to $1,847.20 per ounce on Comex, after trading as low as $1,841.50 — the lowest for a most-active contract since Jan. 6, FactSet data show.

  • Silver futures for March

    declined by 28.3 cents, or 1.3%, to $21.59 per ounce.

  • Palladium for March
    delivery retreated by $40.20, or 2.7%, to $1,426 per ounce, while platinum for April
    declined by $9.60, or 1%, to $929.60 per ounce.

  • Copper for March
    declined by 7.7 cents, or 1.9%, to $3.9985 a pound.

Market drivers

The U.S. dollar advanced following the release of Tuesday’s U.S. CPI data as the numbers were generally hotter than expected, prompting traders to position for the possibility that the Federal Reserve could push its policy interest rate past 5%.

“While inflation is clearly on a downward trend in the U.S., Tuesday’s figure showed the pace at which consumer prices are rising hasn’t slowed as much as the market was anticipating,” said Rupert Rowling, a market analyst at Kinesis Money.

“This readjustment of how many more rate hikes the Fed is set to implement has prompted the price of gold to tumble as the prospect of interest rates rising diminishes the appeal of the precious metal, as it doesn’t generate a yield for its holders, with other interest-bearing assets favored instead.”

The ICE U.S. Dollar Index, a gauge of the dollar’s strength against a basket of rivals, rose 0.7% to 103.965.

Gold, “already on its knees” following that strong U.S. jobs report and hawkish Fed comments earlier this month, has “fallen further out of favour,” said Fawad Razaqzada, market analyst at City Index and, in a market note.

“For now, the path of least resistance is still to the downside, and the nearest obvious reference point is now at $1,800, which is where gold might be heading to next,” he said.

A reading Wednesday on U.S. retail sales also came in stronger than expected, up 3% in January to log the largest increase in almost two years. Economists polled by The Wall Street Journal expected a sales rise of 1.9%.

Still, the New York Federal Reserve’s Empire State business conditions index, a gauge of manufacturing activity in the state, rose 27.1 points in February to negative 5.8, the regional Fed bank said Wednesday. That’s the third month in a row of declining activity but also marks a rebound from a 21.7-point drop in January. Separately, the Federal Reserve reported U.S. industrial production was unchanged in January.

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