You are here

Gold slides 1% after Fed's Powell confirms gradual rate hikes

Gold prices were down 1 per cent Tuesday after the new US central bank chairman pledged to stick with gradual interest rate increases.

[NEW YORK] Gold prices were down 1 per cent Tuesday after the new US central bank chairman pledged to stick with gradual interest rate increases.

Spot gold was down 1.1 per cent at US$1,318.22 an ounce by 1.34pm EST (1834 GMT). Its session low of US$1,313.26 was a two-week low.

April US gold futures settled down US$14.20, or 1.1 per cent, at US$1,318.60 per ounce.

The dollar strengthened, pressuring gold, after US Federal Reserve chief Jerome Powell told US Congress members that rate hikes should continue despite the added stimulus of tax cuts and government spending.

The current Fed consensus has signaled three to four rate increases this year.

"It seemed quite neutral in regards to rates moving forward," said Bob Haberkorn, senior commodities strategist at RJO Futures.

However some analysts said Mr Powell's tone seemed partially hawkish.

Higher US interest rates make bullion less attractive to investors since gold does not pay interest.

"One thing that surprised some was that he seemed to directly mention the stock market and recent volatility as something they're not concerned about," said Jason Ware, chief investment officer of Albion Financial in Salt Lake City.

The dollar index surged to its highest in more than two weeks after Powell's remarks. Stock prices fell, while on the bond market, traders boosted bets the Federal Reserve will squeeze in a fourth rate hike this year Some had investors expected Powell to be less hawkish, said Georgette Boele, commodity strategist at ABN AMRO in Amsterdam.

"Once they realise that the policy's going to continue like it has, then the dollar should recover and gold move lower. With the positioning that's in place, we'll get profit-taking in long euros and long gold."

Ms Boele expects gold to slip under US$1,300 an ounce by the end of the quarter.

Data showing net gold imports by top-consumer China, via main conduit Hong Kong surged 65.2 per cent in January from the previous month, supported gold.

However data released last week showed imports by No. 2 consumer India fell 22 per cent in January.

"While we expect India's gold demand to recover somewhat this year, we doubt that higher consumption in India and China will be enough to offset lower investment demand elsewhere as a result of Fed tightening," commodities economist Simona Gambarini at Capital Economics said in a note.

Meanwhile, silver fell 1.43 per cent at US$16.42 an ounce, dipping to US$16.32, a two-week low.

Palladium lost 2.3 per cent at US$1,036.97 per ounce while platinum fell 1.5 per cent at US$984.40 hitting near a two-week low of US$976.