Gold Dollar After Fed Boosts USD

Gold edged lower on Monday as the dollar strengthened to a one-month high on signs the Federal Reserve is readying to raise interest rates for the first time in six years in 2015.

In a speech to a business group on Friday, Fed Chair Janet Yellen indicated the U.S. central bank was poised to raise rates this year as the world’s largest economy was set to bounce back from an early-year slump and headwinds at home and abroad waned.

Higher U.S. interest rates would increase the opportunity cost of holding non-yielding bullion.

Spot gold was down 0.1 percent at $1,204.46 an ounce by 0847 GMT, just above a near-two-week low of $1,201.20 hit in the previous session. It posted its biggest weekly drop in a month last week, down 1.4 percent.

Liquidity was likely to remain thin on Monday as British and U.S. markets are shut for holidays.

“The Fed raising the rates is certainly not a electrifying news for the precious metal, which is on track to extend its biggest weekly decline since April,” AvaTrade chief market analyst Naeem Aslam said.

“Yellen last week has confirmed that she is still confident that the rates will rise this year and (gold) traders are not fond of this news at all.”

The prospect of higher rates later in 2015 boosted the dollar to its highest in a month against a basket of major currencies on Monday. Stronger-than-expected underlying U.S. inflation and persisting Greek debt worries also supported the greenback.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza