Gold prices fell slightly on Wednesday, extending the decline from the previous session, as investors interpreted comments from Federal Reserve Chairman Jerome Powell to mean that the US may raise interest rates more frequently than anticipated this year.
Spot gold was 0.1 per cent lower at $1,317.01 an ounce at 0506 GMT. Gold closed down 1.1 per cent and fell to as low as $1,313.26 in the previous session, the lowest since February 9. US gold futures were flat at $1,318.50 per ounce.
“We might be entering a short-term period in the gold market where we could see more dollar strength, higher bond rates and a return to equity weakness, a familiar backdrop that could pressure gold lower,” INTL FCStone analyst Edward Meir said in a note.
The dollar index, which measures the greenback against a basket of six major currencies, rose on Tuesday to its highest since February 9 after Powell gave testimony to the US Congress that indicated the possibility of four interest rate hikes this year rather than the three that market participants are expecting.
The dollar index was up 0.1 per cent at 90.427 on Wednesday. The stronger dollar and the potential for higher interest rates reduces the demand for non-interest bearing gold as the metal becomes more expensive for investors paying in other currencies and as they seek higher returns in other assets.
Higher inflation
However, investors may be looking at gold to hedge an expected increase in inflation as the global economy grows, said a Hong Kong-based gold trader.
Powell noted in his speech that recent data had strengthened his confidence in inflation. “People are looking to buy gold on dips so I think it will be supported down at $1,300,” said the trader.
Spot gold is expected to break a support at $1,317 per ounce and fall more to the next support at $1,303, as suggested by its wave pattern and a projection analysis, according to Reuters technical analyst Wang Tao.
Meanwhile, Asian shares extended losses on Wednesday and bonds were sold off as weak factory data from China revived worries about global economic growth, adding to the negative market sentiment triggered by Powell's speech.
Among other precious metals, silver fell 0.3 per cent to $16.37 an ounce. Palladium was up 1 per cent at $1,045.74 per ounce while platinum fell 0.5 per cent to $981.20 per ounce, after dropping to a two-week low of $975.50.