Gold on track for 6% May drop as rate fears rise
MARKETWATCH 8:53 AM ET 5/31/2016
Symbol Last Price Change
SLV 15.39 0 (0%)
GDX 22.28down 0 (0%)
QUOTES AS OF 04:00:00 PM ET 05/27/2016
Commerzbank thinks gold could fall another $50 based on speculator moves
Gold futures traded at a 3 1/2-month low near $1,200 an ounce Tuesday and are now down about $100 from a 15-month high struck in early May as anticipated higher interest rates continue to dent the precious metal.
Gold shed over 3% last week and is off some 6% for May.
The latest big market driver was a Friday speech by Federal Reserve Chairwoman Janet Yellen. She spoke during an interview at Harvard and said it's appropriate for the Fed to gradually and cautiously increase the overnight interest rate over time. Data early Tuesday revealing the biggest jump in consumer spending in April in about seven years (http:/ /www.marketwatch.com/story/consumers-boost-spending-in-april-by-most-in-nearly-seven-years-2016-05-31) only boosted the gold market's view that the Fed could move on rates sooner versus later. The Fed next meets mid-June.
Early Tuesday, June gold fell $2.30, or 0.2%, to $1,211.50 an ounce.
The ICE U.S. Dollar Index was down around 0.2%, its modest decline failing to provide short-term support for gold.
Higher interest rates tend to lift demand for greenbacks, dampening buyer interest in dollar-priced precious metals. Rate increases can also put pressure on gold as commodities don't pay interest, sending investors in search of higher yields in a rising-rate climate.
In the week to May 24, net long positions of financial speculators in gold declined by 56,000 to 156,500 contracts. This was the steepest weekly fall since the data series began 10 years ago, Commerzbank analysts said in a research note.
According to the note, positions were reduced on a similarly radical scale in early November 2015, when net long positions were slashed by 100,000 contracts in the space of just two weeks.
"The Fed was also the trigger back then when it surprised observers with a hawkish accompanying statement after its meeting at the end of October, thereby preparing the market for a rate hike in December," the analysts said. "At that time the gold price dropped from $1,200 to $1,050 by mid-December. In other words, the gold price could still fall by around another $50."
Also early Tuesday, July silver fell 21 cents, or 1.3%, to $16.06 an ounce. July copper fell 1 cent, or 0.6%, to $ 2.10 a pound.
The SPDR Gold Trust fell 0.1%, while the iShares Silver Trust(SLV) dropped 1.1%. The VanEck Vectors Gold Miners ETF(GDX) gained 0.6%.
-Rachel Koning Beals; 415-439-6400; AskNewswires@dowjones.com
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