Gold futures fell Tuesday, reversing course after notching earlier gains, as the market weighed remarks on the economy and interest rates from U.S. Federal Reserve Chairwoman Janet Yellen’s congressional testimony.
Prices for the metal struggled to bounce back a day after suffering their largest single-session loss in some three weeks.
April gold GCJ7, -0.17% slipped $ 2.50, or 0.2%, from Monday’s settlement to trade at $ 1,223.30 an ounce, but off the day’s high of $ 1,236. Prices notched their third straight session loss on Monday, even after they logged a sixth weekly rise in seven weeks on Friday.
“The Street has taken Chair Yellen’s testimony as more hawkish than usual for her, with comments essentially confirming more rate hikes are likely on the way this year,” Colin Cieszynski, chief market strategist at CMC Markets, told MarketWatch.
In testimony to the Senate Banking Committee Tuesday, Yellen said the U.S. economy is expected to continue to expand at a moderate pace, allowing the Fed to raise interest rates at a gradual pace.
She also said that the central bank would look at incoming data to see if the labor market continues to strengthen and if inflation is moving up to the Fed’s 2% target. If so, a “further adjustment of the federal-funds rate would likely be appropriate,” Yellen said.
“Yellen at least kept the possibility of a March rate hike alive” in congressional testimony, but “she offered no real hints that such a move was actually coming and we still think the FOMC will wait until June,” said Paul Ashworth, chief U.S. economist at Capital Economics, in a note.
He pointed out that “Yellen also noted that there was considerable uncertainty surrounding the economic outlook and ‘among the sources of uncertainty are possible changes in U.S. fiscal and other policies’.”
“Under those circumstances, we expect the Fed to wait for more clarity on the size and timing of the proposed fiscal stimulus,” said Ashworth.
Separately, however, Richard Fed Presdient Jeffrey Lacker said that “significantly higher rates are warranted,” with unemployment at or below levels corresponding to maximum sustainable employment and inflation close to the Fed’s target.
“Lacker is not a voter so his comments may not have as much of a specific influence, but [they do] highlight a growing hawkishness in general at the Fed,” said Cieszynski.
Higher interest rates can boost the dollar and dull demand for dollar-denominated commodities. On Tuesday, the ICE U.S. Dollar Index DXY, +0.32% was up 0.3%.
But the U.S. stock rally took a breather, helping to support some short-term interest in haven investments including gold.
Elsewhere on Comex, March silver SIH7, -0.17% shed 4.1 cents, or 0.2%, to $ 17.78 an ounce. March copper HGH7, -1.56% pulled back after supply issues provided a lift to prices over the past two sessions. The contract fell 4.1 cents, or 1.5%, to $ 2.743 a pound.
April platinum PLJ7, -0.09% edged up $ 1.90, or 0.2%, to $ 1,002.20 an ounce and March palladium PAH7, +0.08% rose $ 4.10, or 0.5%, to $ 779.05 an ounce.
The exchange-traded fund SPDR Gold Trust GLD, -0.22% fell 0.3%, while the VanEck Vectors Gold Miners ETF GDX, -0.92% lost 1.1%.