Gold hit a five-week low on Tuesday as the dollar rallied following hawkish comments from an influential US Federal Reserve official and dovish remarks from the Bank of England governor. New York Fed President William Dudley said on Monday that labour market tightness should help drive up inflation, reinforcing the message that recent weak data is unlikely to derail plans to keep raising interest rates.
The greenback had a further lift on Tuesday following dovish comments from Bank of England Governor Mark Carney. Also on Tuesday, Boston Fed President Eric Rosengren said that the era of low interest rates in the US and elsewhere poses financial stability risks and that central bankers must factor such concerns into their decision-making. "It (another US rate hike) is not entirely unlikely. Gold from now to the end of the year could see slight drops, especially if (on top of Fed hikes) the European Central Bank starts tapering its bond buying programme," said Natixis analyst Bernard Dahdah.
Spot gold traded flat at $1,242.40 per ounce by 1511 GMT, after earlier touching a low of $1,241 an ounce, the weakest since May 17. US gold futures fell 0.2 percent to $1,243.80. Investors are pricing in around a 50 percent chance that rates will be raised again by the year-end, according to CME FedWatch. A strong dollar makes dollar-priced gold costlier for non-US investors.
"The market attributes considerable weight to Dudley's words, as he represents the majority opinion of the Federal Open Markets Committee," said Commerzbank in a note. In the wider markets, a 2.5 percent drop in oil prices to their lowest in seven months dragged global equities off all-time highs, limiting losses in gold which is seen as an alternative investment to volatile stocks. Among other metals, spot palladium traded up 0.4 at $865.50 per ounce, and platinum slipped 0.5 percent to $921.50. Silver fell 0.3 percent to $16.41, having earlier touched $16.37, its weakest since May 12.
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