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Gold drops on Yellen rate hike comments

CommoditiesMar 20, 2014 02:59PM ET
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This article has already been saved in your Saved Items - Gold prices dropped as the dollar rose on Thursday as investors bet that rate hikes will take place around the first half of 2015 based on comments Federal Reserve Chair Janet Yellen made on Wednesday.

Gold and the dollar tend to trade inversely with one another.

On the Comex division of the New York Mercantile Exchange, gold futures for April delivery traded at $1,331.00 a troy ounce during U.S. trading, down 0.77%, up from a session low of $1,321.10 and off a high of $1,335.00.

The April contract settled down 1.30% at $1,341.30 on Wednesday.

Futures were likely to find support at $1,320.10 a troy ounce, the low from Feb. 28, and resistance at $1,393.80, the high from Sept. 8.

The dollar shot up for a second day after Yellen suggested at a Wednesday press conference that interest rates could rise six months after the Fed's bond-buying program ends.

The Fed is currently buying $55 billion in Treasury and mortgage debt a month, and expectations for the monetary authority to taper that figure gradually and close the program by fall followed by rate hikes in 2015 strengthened the dollar against gold.

Fed asset purchases aim to stimulate the economy by suppressing interest rates, weakening the dollar as long as they remain in effect, thus making gold an attractive hedge.

Elsewhere, data on Thursday showed that fewer individuals sought first-time jobless benefits in U.S. last week than markets were expecting, which added to the dollar's gains.

The Department of Labor reported that the number of people filing for initial jobless benefits in the week ending March 15 rose by 5,000 to 320,000 from the previous week’s total of 315,000. Analysts had expected jobless claims to rise by 10,000 last week.

A separate report showed that manufacturing activity in the Philadelphia-region expanded at a faster rate than expected in March,

In a report, the Federal Reserve Bank of Philadelphia said that its manufacturing index improved to a reading of 9.0 this month from February’s -6.3 reading. Analysts had expected the index to rise to 3.8 in March.

On the index, a reading above 0.0 indicates improving conditions, below indicates worsening conditions.

The survey’s broadest indicators for general activity, new orders, and shipments increased and recorded positive readings this month, suggesting a return to growth following weather-related weakness in February.

Company employment levels were near steady, but responses reflected optimism about adding to payrolls over the next six months.

The survey's indicators of future activity reflected optimism about continued growth over the next six months.

Soft housing data failed to seriously dent the greenback's advance and offset gold's decline, as markets dismissed the disappointing numbers as the product of rough winter weather.

The National Association of Realtors reported earlier that existing home sales fell 0.4% to a seasonally adjusted 4.60 million units in February from 4.62 million in January.

February’s pace of sales was the lowest since July 2012.

Meanwhile, silver for May delivery was down 2.16% at US$20.377 a troy ounce, while copper futures for May delivery were down 1.70% at US$2.936 a pound.

Gold drops on Yellen rate hike comments

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