Just when gold had started entering in to the good books of majority of the market players, it once again started losing its appeal. Gold has started trending differently from the beginning of May. Along with platinum, palladium and silver, it is heading for the biggest monthly loss since November as investors anticipate higher borrowing costs in the U.S.
Gold has pared this year’s rally after retreating more than 5 percent in May as investors raised bets on the Federal Reserve increasing interest rates from as early as next month, causing the dollar to rally. Higher rates curb bullion’s appeal against interest-bearing assets.
At the start of this month, markets were excessively dovish, pricing almost no probability of a U.S. rate hike in June but a run of better U.S. economic data plus the minutes of April’s FOMC meeting have seen U.S. forward rates move up, the dollar rally and gold has naturally sold off.
The fundamental data released that changed the game for gold were:
- The U.S. Federal Reserve continued to lay the groundwork for an interest rate hike in the next two months, with Governor Jerome Powell saying he felt the U.S. economy was on a “solid footing” and within reach of the central bank’s inflation goals.
- The U.S. economy is set to grow by a 2.9 percent annualized rate in the second quarter following the latest data on durable goods orders and advance goods trade, the Atlanta Federal Reserve’s GDP Now forecast model showed on Thursday.
- U.S. business spending intentions weakened in April for a third straight month amid soft demand for machinery, but a surge in contracts to purchase previously owned homes to a 10-year high supported views economic growth was gaining speed.
- Japan’s core consumer prices fell 0.3 percent in April from a year earlier, the second straight month of declines, keeping the central bank under pressure to deploy additional stimulus to achieve its ambitious 2 percent inflation target.
Gold crawled higher early on Friday but stayed near seven-week lows and remained on track for its biggest weekly decline in nine, with positive economic data boosting expectations U.S. interest rates will rise in the next two months. The dollar stayed in consolidation mode early on Friday after its rally to two-month highs ran out of steam with bulls looking for fresh from the head of the U.S. central bank.
Now the market eagerly waits for the Fed officials will gather in Washington June 14-15 to decide whether to increase rates for the first time since December.