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Gold prices down in Asia as markets see solid prospect of Fed rate hike

Published 05/24/2016, 07:19 PM
Updated 05/24/2016, 07:20 PM
Gold dips in Asia

Gold dips in Asia

Investing.com - Gold prices eased in ASia on Wednesday as investors increasingly expect a rate hike by the Federal Reserve as early as the June policy meeting.

On the Comex division of the New York Mercantile Exchange, gold for June delivery eased 0.31% to $1,225.35 a troy ounce.

Silver futures for July delivery dropped 0.27% to $16.210 a troy ounce. Copper futures for July delivery edged up 0.05% to $2.068 a pound.

Overnight, gold fell sharply on Tuesday dropping to fresh 1-month lows, as robust new home data in the U.S. lifted the dollar and a closely-watched survey on declining sentiment toward a potential Brexit weighed on the precious metal.

Gold has plunged nearly 4% over the last three weeks since hitting 15-month highs around $1,300 an ounce at the start of May. In spite of its recent struggles, the yellow metal is up by more than 15% since the start of the year and is on pace for one of its strongest first halves of a year in more than a decade.

Gold extended Monday's losses after the U.S. Commerce Department said that new home sales in April soared 16.6% to a seasonally adjusted annual rate of 619,000, the highest monthly gain in nearly 25 years. With the sharp gains, new home sales surged to their highest level since January, 2008, topping the next closest reading by more than 70,000.

Analysts expected to see slight gains of 12,000 to 523,000 after March's subdued reading. The stellar figures are a positive sign for economists ahead of a bevy of monthly reports set to be released later this week.

On Wednesday, the Federal House Finance Agency (FHFA) is expected to report a 0.5% gain in home prices for single-family housing for the month of March. It comes after the FHFA's House Price Index only rose by 5.6% on an annual basis a month earlier. Economists typically keep a close eye on home appreciation in low-inflation environments such as the one the U.S. economy is currently experiencing. At week's end, analysts will receive updates on second quarter GDP and the May final reading of consumer sentiment from the University of Michigan.

The unexpected surge in new home prices could also appease the hawks at the Federal Reserve, who have sent strong indications that they will support a June interest rate hike if the incoming data confirms their views of a broadly improving economy. On Monday, St. Louis Fed president James Bullard indicated that he favored a long-term strategy of gradual rate increases opposed to no rate hikes at all, as tight labor markets exert "upward pressure on inflation."

Separately, San Francisco Fed president John Williams said in an appearance in New York that he could see the Fed raising rates two to three times this year, followed by three to four times in 2017. Fed chair Janet Yellen will conclude the week with a speech on Friday at Harvard University.

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.

In England, the British pound ticked up against the doll after the Telegraph's latest ORB poll found that a "Remain" vote has a 13-point lead over a campaign to "Leave," ahead of next month's controversial referendum on the U.K.'s membership in the EU. Among likely voters, approximately 55% supported a vote to stay, while support for a departure rose by three points to 42%.

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