Gold slides after Fed's Powell confirms gradual rate hikes

  • Jerome Powell told U.S. Congress members that rate hikes should continue despite the added stimulus of tax cuts and government spending.
  • The dollar strengthened after the news.
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Stockbyte

Gold prices were down more than 1 percent Tuesday after the new U.S central bank chairman pledged to stick with gradual interest rate increases.

Spot gold was down 1.16 percent at $1,317.6899 an ounce at 2:59 p.m. EST. April U.S. gold futures settled down $14.20, or 1.1 percent, at $1,318.60 per ounce.

The dollar strengthened, pressuring gold, after U.S. Federal Reserve chief Jerome Powell told U.S. Congress members that rate hikes should continue despite the added stimulus of tax cuts and government spending.

The current Fed consensus has signaled three to four rate increases this year. "It seemed quite neutral in regards to rates moving forward," said Bob Haberkorn, senior commodities strategist at RJO Futures. However some analysts said Powell's tone seemed partially hawkish.

Higher U.S. interest rates make bullion less attractive to investors since gold does not pay interest. "One thing that surprised some was that he seemed to directly mention the stock market and recent volatility as something theyre not concerned about," said Jason Ware, chief investment officer of Albion Financial in Salt Lake City.

The dollar index surged to its highest in more than two weeks after Powell's remarks. Stock prices fell, while on the bond market, traders boosted bets the Federal Reserve will squeeze in a fourth rate hike this year.

Some had investors expected Powell to be less hawkish, said Georgette Boele, commodity strategist at ABN AMRO in Amsterdam.

"Once they realize that the policy's going to continue like it has, then the dollar should recover and gold move lower. With the positioning that's in place, we'll get profit-taking in long euros and long gold." Boele expects gold to slip under $1,300 an ounce by the end of the quarter.

Data showing net gold imports by top-consumer China, via main conduit Hong Kong surged 65.2 percent in January from the previous month, supported gold. However, data released last week showed imports by No. 2 consumer India fell 22 percent in January.

"While we expect India's gold demand to recover somewhat this year, we doubt that higher consumption in India and China will be enough to offset lower investment demand elsewhere as a result of Fed tightening," commodities economist Simona Gambarini at Capital Economics said in a note.

Meanwhile, silver fell 1.39 percent at $16.426 an ounce, dipping to $16.32, a two-week low. Palladium lost 2.13 percent at $1,037.47 per ounce while platinum fell 1.57 percent at $980.49 sitting near a two-week low of $976.