Investing.com - Gold futures fell towards a four-week low in North American trade on Monday, adding to overnight losses, as investors bet that the Federal Reserve was on track to raise interest rates sooner rather than later.
San Francisco Fed president John Williams said on Monday that he expects the U.S. central bank to increase rates two or three times this year, though he was concerned about the drop in inflation expectations.
His comments came after St. Louis Federal Reserve President James Bullard said that a relatively tight labor market in the U.S. may put upward pressure on inflation, raising the case for higher interest rates.
Gold for June delivery on the Comex division of the New York Mercantile Exchange fell to a session low of $1,246.00 a troy ounce before recovering slightly to trade at $1,247.05 by 12:50GMT, or 8:50AM ET. Prices fell to $1,244.60 last Thursday, a level not seen since April 28.
Gold futures lost $20.40, or 1.53%, last week, the second straight weekly decline, amid indications the Federal Reserve could raise rates as soon as next month.
Odds of a Fed rate hike for June stood at nearly 30% on Monday, up from just 4% a week earlier, according to futures markets. July odds were at about 53%.
Expectations for a summer rate hike mounted last week after New York Federal Reserve President William Dudley said the U.S. economy could be strong enough to warrant a rate increase in June or July.
The hawkish comments came after the minutes of the Federal Reserve's latest policy meeting suggested a rate hike could come as early as June if economic data points to stronger second-quarter growth as well as firming inflation and employment.
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.
The U.S. dollar held at its highest level in nearly two months against a basket of major currencies early Monday on hints the Fed is getting closer to raising interest rates.
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.
Despite recent losses, prices of the yellow metal are still up nearly 18% so far this year amid indications the Fed will take a slow and cautious approach to raising interest rates this year.
A gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases.
In the week ahead, investors will continue to focus on U.S. economic reports to gauge if the world's largest economy is strong enough to withstand further rate hikes in 2016, with Friday’s revised first quarter growth data in the spotlight.
In addition, there are a handful of Fed speakers on tap, including comments by Fed Chair Yellen 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 dropped 16.2 cents, or 0.98%, to trade at $16.37 a troy ounce during morning hours in New York, while copper futures declined 0.3 cents, or 0.17%, to $2.052 a pound.