Investing.com - Gold futures fell sharply in European trade on Monday, dropping below the key $1,200-level for the first time since February as investors continued to factor in an increased chance of a near-term U.S. interest rate rise.
In remarks made during an appearance at Harvard University Friday afternoon, Federal Reserve Chair Janet Yellen said a rate hike in the coming months "would be appropriate," if the economy and labor market continue to improve.
Traders are now pricing in a 28% chance for a rate hike in June and 60% in July, according to CME Group's (NASDAQ:CME) FedWatch tool. September odds were at about 68%.
Yellen’s comments lifted the U.S. dollar to its highest level in more than two months against a basket of major currencies. A stronger U.S. dollar usually weighs on gold, as it dampens the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
Gold for June delivery on the Comex division of the New York Mercantile Exchange sank to a session low of $1,199.00 a troy ounce, a level not seen since February 17. It last stood at $1,204.25 by 06:44GMT, or 2:44AM ET, down $12.45, or 1.02%.
Trading volumes were likely to remain light with U.S. markets closed Monday for Memorial Day while the U.K. is also shuttered for a public holiday.
Gold lost $36.20, or 2.88%, last week, the third straight weekly decline, on hints the Fed is getting closer to raising interest rates.
Gold futures are down nearly 7% so far in May as hawkish comments from Fed officials as well as minutes of the Fed's April meeting have convinced many analysts and investors that a rate hike in June or July is a real possibility.
Gold is sensitive to moves in U.S. rates, as a rise would lift the opportunity cost of holding non-yielding assets such as bullion.
In the week ahead, investors will be focusing on Friday’s U.S. nonfarm payrolls report for May to gauge if the world's largest economy is strong enough to withstand further rate hikes in 2016. There is also ISM manufacturing data on Wednesday and ISM services on Friday as traders search for more clues on the timing of the next U.S. rate hike.
Elsewhere on the Comex, silver futures for July delivery slumped 31.4 cents, or 1.93%, to trade at $15.95 a troy ounce during morning hours in London, while copper futures declined 1.9 cents, or 0.9%, to $2.095 a pound.
Copper traders will be looking out for a pair of reports on China's manufacturing sector due on Tuesday, amid ongoing concerns over the health of the world's second biggest economy.
The Asian nation is the world’s largest copper consumer, accounting for nearly 45% of world consumption.