Gold Prices Melt to Fresh Five-Month Low
Gold prices fell to a fresh five-month low Friday on a stronger dollar and increased expectations that the Federal Reserve will raise interest rates next month.
Gold for December delivery was recently down 0.4% at $1,212.50 a troy ounce on the Comex division of the New York Mercantile Exchange, trading at its lowest level since June.
The WSJ Dollar Index, which tracks the greenback against a basket of other currencies, was up 0.1% Friday, after gaining for nine consecutive days.
A stronger dollar is typically bearish for gold and other dollar-denominated commodities, because it makes them more expensive for buyers holding other currencies.
On Thursday, Fed Chairwoman Janet Yellen said she expected a rate increase to come "relatively soon," following stronger economic data. Her statement pushed the strength of the dollar to peaks last seen in 2003, while the yield on the U.S. 10-year Treasury reached its highest point this year.
"The testimony had quite a big impact," said Simona Gambarini, a commodities economist at Capital Economics in London.
A rate increase is bearish for gold, which doesn't bear interest. As a result, it struggles to compete against other investments, like bonds, when their yields rise.
Fed fund futures tracked by CME put the likelihood of a rate increase next month at nearly 91% Friday morning.
Gold's fall is subverting analyst's expectations. Bullion was forecast to rally following the election of Donald Trump in the U.S. last week, but it quickly shrugged off haven-buying and sunk, as the dollar gained.
"I still think the markets are somewhat blinkered and are overly optimistic about a Trump presidency and I still think that in the long run, holding gold isn't a bad thing," said David Govett, head of precious metals at Marex Spectron. "But in the face of the dollar's never-ending march higher, there is no point in standing against it."
That doesn't mean investors have stopped watching for signs of international political uncertainty, said Robin Bhar, a commodities analyst at Soci�t� G�n�rale. As well as a referendum in Italy, investors are preparing for elections in France, the Netherlands and Germany next year that will coincide with the first months of Mr. Trump's term.
"With all these events, with all this uncertainty, with the Fed likely to raise rates...this is leading to a lot of volatility," said Mr. Bhar.
--Riva Gold and
Stephanie Yang
contributed to this article.
Write to Katherine Dunn at Katherine.Dunn@wsj.com