Investing.com -- Gold crashed to three-week lows on Thursday morning before paring some of the losses late in the session, as market players continued to price in the improved chances of multiple rate increases from the Federal Reserve this year following hawkish comments from the U.S. central bank on the likelihood of a June rate hike.
On the Comex division of the New York Mercantile Exchange, gold for June delivery wavered between $1,244.50 and $1,262.25 an ounce, before settling at $1,253.25, down $21.15 or 1.66%. Gold extended declines from the previous session when it plunged $15 an ounce after the Federal Open Market Committee (FOMC) said in the minutes from its April meeting that it will likely raise short-term rates at its next meeting in June if the economy continues to improve as expected. Despite the sell-off, gold is up by more than 18% since the start of the year and is on pace for one of its strongest first halves in more than a decade.
Gold likely gained support at $1,063.20, the low from January 4 and was met with resistance at $1,322.10, the high from August 8, 2014. As the dollar has depreciated sharply and uncertainty in global financial markets has receded in recent weeks, the Fed has sent broad signals that it will resume its monetary policy tightening cycle when it meets next on June 14-15.
On Thursday morning, New York Fed president William Dudley noted that it could be appropriate to raise interest rates in June or July if U.S. GDP continues to pick up following a weak first quarter. Speaking at a New York Fed event, Dudley also acknowledged that the Fed should weigh the potential of a U.K. departure from the European Union as it makes its decision. The FOMC has left its benchmark Federal Funds Rate unchanged at 0.25-0.50% in three meetings in 2016, after raising it for the first time in seven years in a historic decision last December.
In response to the Fed's comments, the CME Group's (NASDAQ:CME) Fed Watch tool placed the probability of a June rate hike at 26.3% on Thursday, while leaving the odds for a July rate increase relatively unchanged at 42.1%. By comparison, the CME Group said there was a 15% chance of a July rate hike last month. The CME Group also increased the probability the Fed will complete two rate hikes by December to 25.8%, up from 12.1% last month. Also in June, the FOMC will issue its quarterly long-term projections on the path of the Federal Funds Rate, PCE Inflation, changes in Real GDP and the Unemployment Rate.
While Fed governor Stanley Fischer did not address whether the FOMC should raise rates in June at the same event in New York on Thursday, Fischer indicated that policymakers should spend more time on discovering ways to bolster the "equilibrium real interest rate." The rate, which measures the borrowing costs related to steady inflation and maximum employment, helps guide the Fed on when it is appropriate to raise rates, Fischer said. Any rate hikes by the Fed this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, surged to a seven-week high at 95.51, before falling back to 95.28 in U.S. afternoon trading. The index is still down nearly 5% since the start of December. Dollar-denominated commodities such as gold become more expensive for foreign investors when the dollar appreciates.
Silver for July delivery plummeted 0.702 or 4.10% to $16.43 an ounce.
Copper for July delivery fell 0.018 or 0.84% to $2.061 a pound.