Gold futures logged their lowest settlement in about a month on Wednesday, as gains in the U.S. dollar dampened the value of holding the precious metal.
Recent comments from some Federal Reserve officials, hinting at an interest-rate increase as early as April, helped nudged the dollar higher and weighed on dollar-priced commodities.
The ICE U.S. Dollar Index DXY, +0.17% was up 0.4%, after tapping its highest level in a week, while U.S. equities tipped lower Wednesday as gold futures settled. Higher rates lift the appeal of holding dollars, while a stronger buck cuts the worth of holding nonyielding assets priced in dollars.
April gold GCJ6, -0.42% dropped $24.60, or 2%, to settle at $1,224 an ounce. The settlement marks the lowest since Feb. 26, according to FactSet data. The SPDR Gold Trust GLD, -0.06% was down 1.9%. May silver SIK6, +0.15% sank 61.3 cents, or 3.9%, to $15.272 an ounce—the lowest settlement in a week.
“The backdrop for the weakness [in gold] is the constant jabber from Fed governors that an April rate hike is becoming more likely,” said Peter Hug, global trading director at Kitco Metals.
Talk this week of a potential rate hike in April from at least two Fed central bankers—Atlanta’s Dennis Lockhart and San Francisco’s John Williams—has been a drag on gold, which still stands up some 15% this year.
Another Fed member, Chicago’s Charles Evans, backed his preference for a go-slow approach to raising interest rates but said the trajectory for rates remains up. Philadelphia’s Patrick Harker said during Asian trading hours Wednesday that the improved U.S. outlook largely favored raising short-term interest rates again.
Hug said he continues to see a rate hike as unlikely, but the suggestion has “renewed flows” into the U.S. dollar. He also said he believes the terrorist acts in Brussels this week has “also created some migration away from European assets towards North America.”
Gold futures had closed higher Tuesday, drawing at least short-term demand from investors who sought assets perceived as safe in the wake of those attacks, which left more than 30 dead.
But gold’s reaction to the Belgian bombings was “muted,” signaling that the “short-term path of least resistance is down,” said Michael Armbruster, principal and co-founder at Altavest.
“A correction in the precious metals is overdue,” he said. And, at a minimum, he expects to see prices for the active June gold contract GCM6, -0.42% to pull back to the $1,197 area. That contract settled at $1,225.60 Wednesday.
In other metals trading, May copper HGK6, -1.16% fell 5.4 cents, or 2.4%, to $2.236 a pound. April platinum PLJ6, -0.73% shed $36, or 3.6%, to $960.80 an ounce, while June palladium PAM6, -0.57% fell $22.50, or 3.7%, to $583.10 an ounce.