Investing.com -- Gold fell sharply amid a stronger dollar, as Federal Reserve chair Janet Yellen reiterated on Tuesday that the U.S. central bank would maintain a cautious approach with future interest rate adjustments, producing little reaction from global equity, currency and bond markets.
On the Comex division of the New York Mercantile Exchange, Gold for August delivery traded in a broad range between $1,268.00 and $1,297.00 an ounce before settling at $1,272.05, down $20.05 or 1.55% on the session. With the considerable declines, Gold suffered its fourth straight losing session and it worst one-day loss in nearly a month. At session lows, the front month contract for Gold fell to its lowest level since June 10, erasing nearly all of its gains from a seven-day winning streak earlier this month. The precious metal has still surged more than 19% since the start of the year and is on pace for its strongest first half in more than a decade.
Gold likely gained support at $1,199.00, the low from May 31 and was met with resistance at $1,316.40, the high from June 16.
In testimony before the U.S. Senate Banking Committee on Tuesday, Yellen indicated that the Federal Open Market Committee (FOMC) remains hesitant to raise interest rates for the foreseeable future amid an uncertain global economic backdrop. Yellen's appearance marked her first public appearance since the FOMC held its benchmark Federal Funds Rate steady last week at a targeted range between 0.25 and 0.50%. Citing slow economic and financial developments in China and the euro area, subdued household formation, and meager productivity growth, Yellen said in prepared remarks that the FOMC expects the Fed Funds Rate to remain below its long-term outlook due to the temporary headwinds.
Last month in an appearance at Harvard University, Yellen indicated that the FOMC could raise short-term rates multiple times before the end of the year in the wake of improved labor market conditions and reduced global headwinds. However, the FOMC shifted their expectations and lowered their long-term rate outlook at last week's June monetary policy meeting following a disappointing national employment report in May when the economy added 38,000 nonfarm payrolls, its lowest monthly total in six years.
On Tuesday, Yellen told the Committee that the FOMC will be watching the job market carefully to see whether the recent slowing in employment growth is transitory. At the same time, Yellen said she expects temporary factors holding down inflation to abate. Last month, the Consumer Price Index (CPI) rose by 1% on an annual basis, far below the Fed's long-term target of 2%. While Yellen said the FOMC has the legal authority to push interest rates into negative territory, she emphasized that it is not something the Committee is "actively considering."
"Stronger growth or a more rapid increase in inflation than the Committee currently anticipates would likely make it appropriate to raise the federal funds rate more quickly," Yellen said. "Conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate. We are committed to our dual objectives, and we will adjust policy as appropriate to foster financial conditions consistent with their attainment over time."
Investors who are bullish on Gold are in favor of a gradual tightening of monetary policy by the Fed. Gold, which is not attached to interest rates, struggles to compete with high-yield bearing assets in rising rate environments.
When asked about Thursday's Brexit referendum, Yellen said a departure by the U.K. from the European Union could create increased volatility on financial markets in the euro area, but added that it's hard to predict the impact on the U.S. Pressed further, Yellen responded that a potential Brexit could result in a "risk-off" sentiment that could precipitate a flight-to-safety in capital flows that could push up the dollar or other safe haven currencies. A spike in the dollar, Yellen said, could weigh on domestic manufacturers which are already struggling from a lack of demand abroad.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, surged more than 0.40% to an intraday high of 94.15, bouncing from one-week lows from Monday's session. The index is still down by more than 5% since early-December.
Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.
Silver for July delivery fell 0.209 or 1.19% to $17.305 an ounce.
Copper for July delivery jumped 0.023 or 1.10% to $2.116 a pound.