Gold fell to a 5-1/2-month low on Thursday, giving up earlier gains as the dollar index tapped a 13-1/2-year high on strong US economic data and comments by US Federal Reserve Chair Janet Yellen that bolstered the case for hiking interest rates next month.
The election of Republican Donald Trump as US president has done nothing to change the Fed's plans for a rate increase "relatively soon," Yellen said in Congressional testimony that included a pledge to serve out her term. Spot gold was down 0.8 percent at $1,215.50 an ounce by 2:31 p.m. EST (1931 GMT), after falling to $1,210.73, the lowest since June 3.
US gold futures settled down 0.6 percent at $1,216.90 per ounce. Gold turned lower as the US dollar rose to the highest since 2003 against a basket of six major currencies. "With the move up in the dollar, that will continue to pressure gold prices," said Dan Heckman, national investment consultant for US Bank Wealth Management in Kansas City.
Spot gold has shed about 9 percent from the six-week high reached briefly after the US election on Nov. 9. "With the market pricing in a 98 percent probability of a rate hike this December, this is one of the best-telegraphed Fed messages ever," said Maria Smirnova, Sprott Asset Management portfolio manager, adding that hints of monetary policy in 2017 will also be important.
Gold is highly sensitive to interest rates. "We believe if Trump spends by cutting taxes and increasing infrastructure build out, he will add to the debt burden in the US, which will in turn put pressure on interest rates," Smirnova said.
Among other precious metals, palladium rose as much as 1.7 percent to $734.40, the highest since Aug. 10. The metal, which also has industrial uses, has risen for nine out of the last 10 sessions. Palladium has sharply outperformed sister metal platinum recently, with the spread between the two sliding to about $215 from $377 over the past two weeks. Platinum slipped 0.7 percent at $937.60 an ounce while silver dropped 1.9 percent to $16.64.
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