Gold Prices Suffers As WSJ Fed Watchers See Potential For Sept Rate Hike

(Kitco News) - Gold prices are hovering near session lows Wednesday as the market is adjusting to a stronger U.S. dollar and rising interest rate expectations.

According to some analysts, the U.S. dollar received a boost overnight after Wall Street Journal Fed watchers Jon Hilsenrath and Michael Derby noted that the Federal Open Market Committee could potentially raise interest rates as early as September.

 “Policy makers at the central bank are almost certain to leave rates unchanged when they meet July 26-27, according to their public comments and interviews with officials,” they wrote in the article. “But the message in their post-meeting policy statement could be that the economy is on a more solid footing than it seemed to be when officials last gathered in June, setting the stage for raising interest rates if economic data hold up in the months ahead.”

However, it is not only journalists who see the potential of a rate hike in September. Economists at BNP Paribas have raised their expectations for rate hikes as well.

“The market is too complacent about the U.S. Federal Reserve. Better data of late and an easing of financial conditions have prompted us to revise our Fed forecast,” they said in a note Wednesday. “The next steps towards a hike should be a more upbeat FOMC statement, a more hawkish set of minutes and speeches saying risks have diminished. Data will decide the timing.”

New expectations have caused gold prices to suffer, falling to their lowest level since June 28. August gold futures last traded at $1,319.90 an ounce, down less than 1% on the day. Despite the renewed selling pressure, gold has managed to hold onto some of its post-Brexit gains.

As to how low gold could fall in the near-term, commodity strategists at iiTrader said that they are looking for gold to test support at $1,308 an ounce.

While gold prices have lagged, the U.S. dollar has seen a surge in momentum, with prices rallying to their highest level since early March; as of 11:49 a.m. ET, the USD index last traded at 97.185, up only 0.08% on the day. At the same time, interest rate expectations have pushed higher.

CME 30-Day Fed Fund futures show that expectations for a rate hike in July are nonexistent; however, markets are now pricing in a 24% chance of a move in September, up from 19% Tuesday.

Markets are pricing in a 25% chance of a rate hike in November, up from 20% priced in yesterday. Markets are also pricing in a 0.5% chance that interest rates will be between 0.75% and 1.00%.

Courtesy: Kitco News